|WJB Capital Group, Inc., Craig A. Rothfeld and Gregory S. Maleski Action|
WASHINGTON — The Financial Industry Regulatory Authority (FINRA) today announced that it has expelled WJB Capital Group, Inc. for misstating its financial records and for engaging in securities transactions while it was below its required net capital. FINRA also barred the firm's Chief Executive Officer, Craig A. Rothfeld, from the securities industry, and barred the firm's Chief Financial Officer, Gregory S. Maleski, from acting in a principal capacity.
FINRA found that from 2009, when WJB Capital began to experience financial difficulties, through 2011, Rothfeld and Maleski misstated WJB's financial position on the firm's balance sheet. In one example, Rothfeld and Maleski converted $9.8 million in compensation previously paid to 28 employees into forgivable loans. As a result, the firm also failed to provide for the appropriate payment of taxes. Had WJB appropriately recorded these loans and tax obligations, its balance sheet would have reflected substantial losses in addition to those that it was already experiencing.
In addition, Rothfeld and Maleski misclassified certain items as allowable for net capital purposes; as a result, at various times in 2011, WJB engaged in securities transactions when it was below its minimum required net capital. For example, the firm improperly included receivables related to "non-deal road-shows" when they were not allowable assets under the net capital rule. As a result of the misclassification of these receivables, WJB misstated its FOCUS report and net capital calculations by at least $1 million on a monthly basis for approximately two years. The firm also misclassified a $1.5 million loan it received from its clearing firm as an allowable asset for net capital. Rothfeld, Maleski and WJB also failed to reasonably supervise the firm's financial and accounting functions.
Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, said, "Both WJB's CEO and CFO hid the precarious financial condition of the firm, misstating the FOCUS reports and net capital calculations by as much as $4.4 million per month over a two-year period. The firm's supervision and accounting were seriously flawed."
In settling this matter, WJB, Rothfeld and Maleski neither admitted nor denied the charges, but consented to the entry of FINRA's findings.
This investigation was conducted by Howard Kneller and Steven Korostoff under the supervision of Susan Light. The Department of Enforcement was assisted by FINRA's Department of Risk Oversight and Operational Regulation, which referred the matter to Enforcement after the examination team discovered several questionable accounting entries in WJB's 2009 FOCUS reports.
Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA's BrokerCheck. FINRA makes BrokerCheck available at no charge. In 2011, members of the public used this service to conduct 14.2 million reviews of broker or firm records. Investors can access BrokerCheck at www.finra.org/brokercheck or by calling (800) 289-9999. Investors may find copies of this disciplinary action as well as other disciplinary documents in FINRA's Disciplinary Actions Online database.
FINRA, the Financial Industry Regulatory Authority, is the largest independent regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business – from registering and educating all industry participants to examining securities firms, writing rules, enforcing those rules and the federal securities laws, informing and educating the investing public, providing trade reporting and other industry utilities, and administering the largest dispute resolution forum for investors and firms. For more information, please visit www.finra.org.