Broker-Dealer Litigation - Greenberg Traurig LLP

In re Application of Kaminski, Admin. Proc. File No. 3-14054, SEC Release No. 34-65347, 2011
SEC LEXIS 3225 (Sept. 16, 2011).
Respondent Kaminski, formerly a general securities principal and senior executive officer
of Mutual Service Corporation (“MSC”), an NASD member firm, sought review of a NASD
disciplinary action, specifically a December 2008 hearing panel decision finding that he failed
reasonably to supervise MSC’s review of its variable annuity transactions for a three-month
period in 2004, resulting in a six month suspension in all principal capacities and a fine of
$50,000. The decision was reviewed by the National Adjudicatory Counsel (“NAC”) on its own
motion. The NAC affirmed the fine, but increased the principal suspension to an 18-month
suspension in all capacities, with a requirement to requalifiy before resuming his duties.
In a very detailed Order, the SEC reviewed the evidence of Kaminski’s misconduct and
the context in which it occurred, and responded to Kaminski’s arguments attacking the NAC’s
decision. The SEC agreed with the NAC’s conclusion that the conduct was egregious, based
largely on the fact that Kaminski was found to have suspended the firm’s use of a “red flag
blotter,” which was created as part of the resolution of a prior NASD disciplinary action
regarding supervision of variable annuity transactions. Kaminiski insisted that he did not make
the decision to suspend use of the blotter, but the SEC agreed with the NASD’s conclusion that
Kaminiski’s position was not credible, as it was rebutted by direct testimony and circumstantial
evidence that the trier of fact was in a better position to assess, and thus, would not be
overturned. The SEC also rejected Kaminski’s argument that his sanction was
disproportionately severe because other supervisors at MSC were treated less severely by the
NASD for their participation in variable annuity supervision at the firm. The SEC, however,
declined to give credence to Kaminski’s argument, relying on its long-standing position that the
appropriateness of sanctions is based on facts and circumstances and cannot be measured by
comparing one case to another.
The Commission affirmed the NAC’s decision in all respects.
In re Gautney, Admin. Proc. File No. 3-14069, SEC Release No. 34-65151, 2011 SEC LEXIS
2944 (Aug. 17, 2011) (as to Respondent Blum); In re Gautney, Admin. Proc. File No. 3-14069,
SEC Release No. 34-65124, 2011 SEC LEXIS 2841 (Aug. 12, 2011(as to Respondent Bellia).
Two related settled administrative proceedings arise form allegations of churning by
registered representatives affiliated with Aura Financial Services, Inc. (“Aura”). Respondent
Blum was the manager of Aura’s Miami branch office. Blum was responsible for supervising a
representative charged with churning accounts of two of his customers. Blum received quarterly
reports showing turnover rations of between 6 and 54 and cost to equity ratios of 14% to 54%.
Moreover, the accounts were aggressively traded, inconsistent with the customers’ investment
objectives and risk tolerance.
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