FINRA Orders Westpark Capital to Pay $400,000 for Failing to Supervise Brokers with Histories of Disciplinary Actions, Customer Complaints Who Churned Accounts, Engaged in Unauthorized and Unsuitable Trading
Chief Operations Officer, Former Chief Compliance Officer Also Named; Former Brokers Barred, Former Branch Manager Disciplined in Separate Actions
Washington, DC — The Financial Industry Regulatory Authority (FINRA) announced today that it has ordered Los Angeles-based Westpark Capital, Inc. to pay a total of $400,000 for supervisory system failures, and has suspended two officers for failing to supervise brokers in two now-closed Long Island branches who churned customer accounts and engaged in unauthorized and unsuitable trading in multiple accounts. The monetary sanction includes a $100,000 fine and $300,000 in restitution to affected customers.
FINRA suspended Westpark's former Chief Compliance Officer, William A. Morgan, for four months in any principal capacity and ordered him to pay a $5,000 fine. Chief Operations Officer Jason S. Stern has been suspended for three months in any principal capacity and fined $20,000.
In related actions, FINRA has barred and/or fined two brokers and a branch manager who were previously employed in Westpark's Long Island branch offices, and has filed a complaint against another former broker involved in the misconduct, charging him with churning accounts and other violations. Two additional former brokers involved have already been barred, by FINRA or the Securities and Exchange Commission, for misconduct at other firms prior to or after their employment with Westpark.
Several of the brokers involved came to Westpark from broker-dealers that had lengthy disciplinary records and that FINRA has expelled from the securities industry, such as Stratton Oakmont, Inc., LH Ross & Co., Salomon Grey Financial Corp. and Continental Broker-Dealer Corp. When Westpark hired them, several of the brokers themselves had histories that included multiple customer complaints and/or disciplinary actions.
"When a firm and its senior managers have reason to be aware of potential problems and fail to address the issues appropriately, they have not fulfilled their supervisory obligations," said James S. Shorris, FINRA Executive Vice President and Executive Director of Enforcement. "Westpark's failure to recognize and respond adequately to both broker- and customer account-related issues, involving brokers who came from troubled brokerage firms, resulted in significant customer harm."
In its action against Westpark, Morgan and Stern, FINRA found that between February 2006 and July 2007, the firm failed to establish and maintain an adequate system for supervising its brokers. Among the supervisory system's deficiencies:
- Westpark failed to restrict the activities of certain Long Island brokers and failed to monitor their customer account activities, even though they had disciplinary histories and customer complaints that included unauthorized, unsuitable and excessive trading;
- The firm performed inadequate monitoring of excessive trading, failed to have standards for what constituted excessive trading and failed to prescribe any steps that would be taken if excessive trading were suspected; and
- The firm's system assigned front line supervisory responsibility to branch office managers, even though the Long Island managers were inexperienced or had previously been disciplined for failure to supervise.
- FINRA also found that despite the fact that Westpark had placed all of the brokers in question on "heightened supervision," Morgan and Stern failed to supervise several brokers who committed serious sales practice violations – including unauthorized, unsuitable and excessive trading involving at least 19 customer accounts.
FINRA also found that Morgan and Stern failed to adequately scrutinize the conduct of the Long Island brokers and to address red flags, including disciplinary and employment histories, customer complaints and questionable account activity, such as evidence of excessive trading, a high level of margin and frequent concentration of customer accounts in a single security.
In related actions, FINRA has taken the following actions against a former branch manager and former brokers at Westpark's former Long Island branches:
- Robert A. Bellia, Jr., a former branch manager, was barred permanently from association with any securities firm in a principal capacity and ordered to pay a $10,000 fine. FINRA found that Bellia failed to supervise three Westpark brokers who churned and executed unsuitable and unauthorized trades in at least 12 customer accounts.
- Dale R. Menendez, Jr., a former broker, was barred permanently from the industry by a FINRA Hearing Officer and ordered to pay over $110,000 in restitution to his customers. The Hearing Officer found that Menendez engaged in excessive and unauthorized trading, mischaracterized customer transactions to his firm and failed to appear for testimony during the FINRA investigation of his conduct.
- Michael Quattalaro, a former broker, was barred permanently from the securities industry. FINRA found that Quattalaro churned and engaged in excessively unsuitable trading in two customer accounts and exercised discretion in those accounts without prior written customer authority.
- Chanse K. Menendez, Sr., a former broker, has been charged in a FINRA complaint with excessive trading and churning activity in two customer accounts. The complaint also alleges that Menendez mischaracterized "solicited" trades as "unsolicited" trades in an apparent attempt to conceal his misconduct in those accounts, as well as in a third account. In addition, the complaint alleges that Menendez failed to appear for testimony and provide documents during the FINRA investigation of his conduct. The case is pending.
In concluding the settled proceedings, Westpark, Morgan, Stern, Bellia and Quattalaro neither admitted nor denied the charges, but consented to the entry of FINRA's findings.
With respect to Chanse Menendez, under FINRA rules, a firm or individual named in a complaint can file a response and request a hearing before a FINRA disciplinary panel. Possible remedies include a fine, censure, suspension or bar from the securities industry, disgorgement of gains associated with the violations, and payment of restitution. The issuance of a disciplinary complaint represents the initiation of a formal proceeding by FINRA in which findings as to the allegations in the complaint have not been made and does not represent a decision as to any of the allegations contained in the complaint. Because this complaint is unadjudicated, interested persons may wish to contact the respondent before drawing any conclusions regarding the allegations in the complaint.
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 2009, members of the public used this service to conduct 18.5 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. 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 and enforcing 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.