Broker-Dealer Litigation - Greenberg Traurig LLP

capacities. The NAC cited the fact that there were “numerous aggravating factors,” and that the
number of “obvious red flag warnings” that the supervisory ignored indicated that his “failures
must have stemmed from some degree of intent.” The NAC concluded that the supervisor posed
“a serious risk to the investing public, in whatever capacity he would function, that his failure to
supervise was egregious, and that sanctions at the high end of the relevant range are warranted.”
Department of Enforcement v. Midas Securities, LLC, Complaint No. 2005000075703, 2011
FINRA LEXIS 71, (NAC, March 3, 2011).
A hearing panel found respondents Midas Securities, LLC, World Trade Financial
Corporation and Frank Edward Brickell responsible for violations stemming from the sale of
unregistered securities in violation of Section 5 of the Securities Act and NASD Rule 2110,
fining Midas $30,000, World Trade $15,000, and Brickell $15,000, with a 30 business-day
suspension in all capacities. The hearing panel also imposed sanctions for related supervisory
violations against Midas for $25,000 and World Trade for $15,000. The panel sanctioned
individual supervisors, fining Michel $15,000, with a 45-day principal suspension, and Lee
$20,000, with a two year suspension in all capacities, and Adams $10,000, with a 30-day
principal suspension.
The NAC reviewed the hearing panel’s findings that the firms lacked written policies and
procedures that were tailored to its business, a large proportion of which dealt with handling
transactions in unregistered securities. The firms’ procedures were found to be lacking in that
they did not require representatives to make any inquiry when they received large volumes of
thinly traded, unregistered shares for liquidation, and did not offer guidance as to what due
diligence was required when dealing with the unregistered stock that was deposited for sale by
the firms’ customers. In addition, there was significant evidence that the individual supervisors
were aware of, but did not follow-up on, situations that constituted red-flags as to possible
Section 5 violations.
The National Adjudicatory Council, on appeal by respondents, affirmed the findings of
the hearing panel, but modified the sanctions. The NAC found that the supervisory conduct was
egregious. The fine for World Trade was increase to $30,000; the fine for Midas increased to
$50,000; the fine for Michel was increased to $30,000; the fine for Lee was increased to
$50,000; and the fine for Adams was increased to $20,000. The suspensions for Michel, Lee and
Adams, however, were not modified. The hearing panel, as an additional sanction, prohibited
Midas and World Trade from receiver or selling unregistered securities until they complied with
an undertaking to engage an independent consultant to review their supervisory policies and
procedures relating to Section 5 and recommend necessary improvements.
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