Broker-Dealer Litigation - Greenberg Traurig LLP

materials did not disclose the downside risks of holding the WorldCom shares on margin, such as
accelerated losses including interest payments and margin calls if the share price declined, as it
ultimately did. The SEC sustained the NYSE’s censure of Spartis and Elias.
FINRA Department of Enforcement v. Kale E. Evans, FINRA Disc. Action Complaint No.
2006005977901, 2011 FINRA Discip. LEXIS 36 (Oct. 3, 2011).
The Financial Industry Regulatory Authority (“FINRA”) National Adjudicatory Council
(“NAC”) affirmed the Hearing Panel’s sanctions against Kale E. Evans for violations of various
NASD and FINRA rules. Evans, while a registered representative of TD Waterhouse Investor
Services, Inc. (the “Firm”), induced a young woman who was living with his family to entrust
him with the proceeds of her father’s life insurance plan. Evans convinced her to establish a
joint brokerage account with him at his Firm, and he opened a margin account for her. He then
proceeded to fund the account with the life insurance money and undertook risky trades, relying
heavily on margin. These trades were all executed without the young woman’s knowledge, and
the account suffered heavy losses. When the young woman learned of these losses she
confronted Evans and he tried to settle the matter with away from his Firm. FINRA charged him
with violating NASD Rules 2110, 2310, 2510(a) and Interpretive Material 2310-2(b)(2). The
Hearing Panel barred Evans from associating with any FINRA member in any capacity, and the
NAC affirmed the Hearing Panel’s decision and also ordered him to pay disgorgement in the
amount of $52,647.
FINRA Department of Enforcement v. William J. Murphy Midlothian, Carl M. Birkelbach, and
Birkelbach Investment Securities, Inc., FINRA Disc. Action Complaint No. 2005003610701,
2011 FINRA Discip. LEXIS 42 (Oct. 20, 2011).
The Financial Industry Regulatory Authority (“FINRA”) National Adjudicatory Council
(“NAC”) affirmed the Hearing Panel’s sanctions against William J. Murphy Midlothian, Carl M.
Birkelbach, and Birkelbach Investment Securities, Inc. (the “Firm) for violations of various
federal securities laws, NASD rules, and FINRA rules. Midlothian, a registered representative,
engaged in unauthorized trading in two customer accounts, and his misconduct included
churning these accounts, engaging in excessive and unsuitable trading that created large margin
debit balances, and sending the customers misleading written communications about their
accounts. He was charged with violating NASD Rule 2510(b), 2860, 2110, 2310, IM-2310-2,
2220, and Section 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5.
His supervisor Birkelbach ignored numerous red flags and failed to adequately supervise
Midlothian, and was charged with violating NASD Rules 3010, 2860(b), and 2110. The Firm
was also charged with using an improper confidentiality provision in a settlement agreement
with a customer, in violation of NASD Rule 2110. The NAC barred Murphy and fined him
$586,174.67 for disgorgement, and also barred Birkelbach in all capacities. The NAC also
affirmed the $2,500 fine on the Firm.
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