FINRA Expels Barron Moore and Takes Disciplinary Actions Against Seven Individuals for Illegal Sales of Unregistered Penny Stocks
Two Individuals Barred, Others Fined and Suspended
Washington, D.C. — The Financial Industry Regulatory Authority (FINRA) announced today that it has expelled Barron Moore, Inc. of Dallas, TX and taken disciplinary action against seven individuals for violations arising from the illegal sale of unregistered penny stocks. Those sanctions range from fines and suspensions to permanent bars from the securities industry.
The individuals include five registered representatives formerly associated with three different firms — Barron Moore, Midas Securities LLC of Anaheim, CA and Milestone Group Management, which is no longer in business — and supervisors from Barron Moore and Milestone. One registered representative was barred for failing to provide documents and testimony in FINRA's investigation.
FINRA found that four of the registered representatives sold large quantities of unregistered stock into the public markets on behalf of customers, in violation of federal securities laws, specifically Section 5 of the Securities Act of 1933. Neither the representatives nor the supervisors took appropriate steps to determine whether the securities could be sold without violating the registration requirements of the federal securities laws. FINRA found that this conduct occurred despite the presence of numerous red flags indicating that illegal stock distributions might be taking place.
"Retail brokers are the first line of defense for the markets," said Susan L. Merrill, Executive Vice President and Chief of Enforcement. "Brokerage firms and their employees must take action to ensure that they are not participating in illegal sales of unregistered securities. In this case, the respondents failed to take appropriate action and illegally sold millions of shares of unregistered securities into the public marketplace."
FINRA found that Barron Moore sold more than 6.75 million shares of unregistered stock of three companies, on behalf of seven customers, resulting in unlawful proceeds of more than $975,000. Barron Moore opened accounts for numerous customers who repeatedly deposited large numbers of unregistered shares of thinly-traded securities into those accounts, sold those securities and then wired the proceeds out of the accounts. FINRA found that Katherine Moore, Barron Moore's president, chief executive officer and principal owner, failed to supervise the registered representatives who engaged in the misconduct and failed to ensure that Barron Moore had adequate supervisory procedures concerning the sale of unregistered securities.
Most of the illegal sales involved unregistered securities of one penny stock company, iStorage Networks, Inc. FINRA found that shortly after iStorage Networks engaged in a reverse merger with another company, three shareholders distributed millions of shares of the company's unregistered stock to scores of individuals and entities. Shortly thereafter, a number of the recipients deposited large amounts of the unregistered stock into accounts at Barron Moore and the other two firms and began selling those shares into the market. FINRA found that Barron Moore also engaged in illegal sales of unregistered stock of two other penny stock companies, Consolidated Sports Media Group, Inc. and Structures USA, Inc.
FINRA also found that Barron Moore and Katherine Moore failed to develop and implement a reasonable anti-money laundering compliance program, and failed to detect and report suspicious activities by a convicted money launderer as well as in accounts ostensibly controlled by a 20-year-old who washed and detailed the cars of Barron Moore employees.
In addition, FINRA found that Barron Moore and Katherine Moore failed to maintain accurate books and records in connection with the investments of six customers investing in an offering of a company known as CyberZONE, Inc. Barron Moore also failed to maintain an accurate checks-received-and-forwarded blotter for the CyberZONE offering and failed to maintain adequate net capital.
In settling these charges, FINRA expelled Barron Moore from the securities industry and suspended Katherine Moore from acting in a principal capacity for 90 days, fined her $50,000 and ordered her to requalify before acting as a general securities principal.
The other individuals disciplined are:
- Seth Botone, formerly a registered representative at Barron Moore, who was charged with selling over 6.5 million shares of unregistered stock of iStorage Networks, Consolidated Sports Media Group, Inc. and Structures USA, Inc. on behalf of four customer accounts. Botone failed to respond to the charges and a FINRA hearing officer issued a default decision barring him from the securities industry.
- Benjamin Centeno and Jeffrey Santohigashi, both formerly registered representatives at Midas Securities, who served as brokers for the same customer and sold 760,000 unregistered shares of iStorage Networks on behalf of that customer. Centeno was suspended from association with any firm for 30 days and fined $10,000. Santohigashi was suspended from association with any securities firm for 20 days and fined $10,000.
- William Kassar, Jr., formerly a registered representative at Milestone Group Management, who was charged with selling 227,000 unregistered shares of iStorage Networks on behalf of one customer. Kassar was suspended from association with any firm for 30 days and fined $10,000.
- Paul Casella, formerly the compliance officer and manager at Milestone Group Management, who was charged with failing to supervise a registered representative who sold unregistered securities of two issuers, including iStorage Networks. Casella did not respond to the charges and a FINRA hearing officer issued a default decision suspending him from association with any FINRA -registered firm for one year and fining him $50,000.
- Joshua Lankford, formerly a registered representative at Barron Moore, who consented to the imposition of a bar from the industry resulting from his failure to provide documents and testify in FINRA's investigation.
In settling these matters, Barron Moore, Katherine Moore, Lankford, Centeno, Santohigashi, and Kassar neither admitted nor denied the charges, but consented to the entry of FINRA's findings.
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 2007, members of the public used this service to conduct 6.7 million reviews of broker or firm records. Investors can access BrokerCheck at www.finra.org/brokercheck or by calling (800) 289-9999.
FINRA is the largest non-governmental regulator for all securities firms doing business in the United States. Created in 2007 through the consolidation of NASD and NYSE Member Regulation, 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 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 registered firms.
For more information, please visit our Web site at www.finra.org.