Washington, DC—FINRA announced today that it has fined GunnAllen Financial, Inc., of Tampa, FL $750,000 for its role in a trade allocation scheme conducted by the firm's former head trader, as well as for various Anti-Money Laundering (AML), reporting, record-keeping and supervisory deficiencies. Kelley McMahon, the former head trader's supervisor, was suspended for six months from association with any FINRA-registered firm in any principal capacity and fined $25,000, jointly and severally with the firm.
FINRA barred Alexis J. Rivera, the former head trader, in connection with the trade allocation scheme, in December 2006. FINRA found that in 2002 and 2003, the firm, acting through Rivera, engaged in a "cherry picking" scheme in which Rivera allocated profitable stock trades to his wife's personal account instead of to the accounts of firm customers. Rivera garnered improper profits of more than $270,000 through this misconduct, which violated the anti-fraud provisions of the federal securities laws and FINRA rules. Rivera was barred in December 2006.
"Broker-dealers have an obligation to supervise their registered representatives with a view to preventing them from engaging in conduct that violates fundamental rules, such as the anti-fraud provisions of the federal securities laws," said Susan Merrill, FINRA Executive Vice President and Chief of Enforcement. "The supervisory deficiencies here permitted the firm's trader to perpetrate a scheme that allowed him to benefit at the expense of the firm's customers, and contributed to serious violations in other areas of the firm's business. One such area was the investment banking department, where the firm's failures resulted in an absence of procedures to prevent the misuse of material, non-public information."
In connection with the firm's investment banking business, FINRA found that prior to March 2005, GunnAllen never put any stock of a company on a restricted or watch list even though the firm was conducting investment banking business with these companies. During the same period, GunnAllen failed to inform its own compliance department of the investment banking activities in which the firm was involved.
FINRA also sanctioned GunnAllen for failing to report to FINRA that its parent firm had entered into a consulting contract with an individual who had been previously barred by FINRA. In addition, the firm was sanctioned for failing to preserve e-mails and instant messages, for failing to implement an adequate AML compliance program and for supervisory and complaint reporting deficiencies. Supervisory deficiencies included a failure to ensure that markups and commissions charged on equity transactions were reasonable. In reviewing markups on equity transactions, the firm did little more than ensure that commission charges did not exceed 5 percent. GunnAllen and McMahon settled these matters without admitting or denying the allegations, 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, the Financial Industry Regulatory Authority, 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.
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