Broker-Dealer Litigation - Greenberg Traurig LLP

maintain and enforce a system of supervisory control procedures for testing and verification of
the supervisory procedures. Finally, the panel found that the firm failed to timely update its
Form BD to identify its new chief compliance officer, and failed to file timely an annual
certification.
For all these violations, the hearing panel imposed a censure, a fine of $335,000,
restitution of $482,111.27, plus accrued interest to customers, and hearing costs. The hearing
panel made clear in its decision, however, that the fines pertaining to the supervisory violations
were $25,000 for failing to maintain and enforce its supervisory system for mark-ups and
proprietary trades, $5,000 for its lack of testing and verification that its procedures were
adequate, and $5,000 for failing to timely update its Form BD and failing to file a timely annual
certification.
Department of Enforcement v. Otalvaro, Disciplinary Proceeding No. 2008011725901, 2011
FINRA Discip. LEXIS 39 (OHO, June 24, 2011).
Respondent was charged with failing to disclose on his Form U-4 information regarding
securities arbitrations filed against him. He was named as a respondent in seven arbitrations
filed by customers of his firm. All of the claims related to investments with the firm. All of the
arbitrations included claims against him for supervisory failures, and at least one charged him
with active participation in the alleged fraud. Five of the arbitrations were settled for sums in
excess of $15,000, triggering reporting obligations.
The panel found that “failure to supervise” allegations in arbitration complaints needed to
be reported. It cited the “Explanation of Terms” for the Form U4, which defines “involved” as
“doing an act or aiding, abetting, counseling, commanding, inducing, conspiring with or failing
reasonably to supervise another in doing an act.” The panel also noted that the failure to disclose
the arbitration was material, because the arbitrations filed against respondent and his firm “might
have alerted regulators to possible supervisory problems and sales practice problems.”
After a hearing, the panel suspended respondent from associating with any FINRA
member firm in any capacity for one year, barred him from acting as a principal for any FINRA
member firm, and fined him $15,000.
Department of Enforcement v. Gallagher, Disciplinary Proceeding No. 2008011701203, 2011
FINRA Discip. LEXIS 40 (OHO June 13, 2011).
Respondent Vision Securities was charged with violating FINRA rules pertaining to
allowing the President of the firm to act as an unregistered principal, failing to apply heightened
supervision over the President, failing to adopt a supervisory control system and failing to file
annual certifications, fail to file AML testing, and continuing educations violations, among other
things.
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