Broker-Dealer Litigation - Greenberg Traurig LLP

Commission’s earlier decision sustaining a FINRA decision from 2008 finding violations of
Section 17(e) of the Securities Exchange Act of 1934, Rule 17a-5 thereunder, and NASD Rule
2110 by FCS Securities and Kleinser for failure to file audited financial reports. FINRA had fined
the Firm and Kleinser $5,000, jointly and severally, and suspended the Firm from membership for
four months, with the suspension to convert to an expulsion if the Firm did not file audited annual
reports for 2006 and 2007 before the suspension ended. Applicants first appealed to the National
Adjudicatory Council, which sustained FINRA’s decision. On appeal to the Commission, the
Commission found that the Firm failed to file audited financial reports for fiscal years 2006 and
2007 and failed to show that the exemption contained in Rule 17a-5(e)(1)(i)(B) under the
Securities Exchange Act of 1934 permitted them to file unaudited annual reports for those years.
The Commission further rejected the Applicants’ argument that their situation was similar to that
described in certain No Action Letters, distinguishing the facts described in those letters and
stating that the Commission was not bound by the statements of Commission staff in such letters.
In denying Applicants’ subsequent motion for reconsideration, the Commission found that the
motion raised arguments that the Commission had already rejected and did not introduce any
newly discovered evidence.
In re Neaton, Release No. 65863, 2011 SEC LEXIS 4232 (Dec. 1, 2011).
The Commission denied a motion for reconsideration by Neaton, a former registered
representative of various FINRA member firms, of a Commission decision. The underlying
FINRA hearing panel decision barred Neaton from association and fined him $5,000. Neaton
appealed to the National Adjudicatory Council, which sustained the bar against him but waived
the fine. On further appeal, the Commission found that Neaton violated NASD Conduct Rule
2110 and Membership Rule IM-1000-1 by willfully submitting a Form U-4 that did not disclose
disciplinary actions and sanctions imposed on him by a state bar disciplinary board. The
Commission, noting that it is the decision of the National Adjudicatory Council and not the
underlying FINRA hearing panel decision that is subject to Commission review, sustained the
bar, and further found that Neaton was subject to a statutory disqualification because his failures
to disclose were willful. In his motion for reconsideration, Neaton argued, in relevant part, that
the Commission erred in finding that his actions caused harm. The Commission rejected this
argument, concluding there was harm by Neaton’s failure to amend his Form U-4 as employers,
regulators, and potential customers were deprived of the information. The Commission upheld
the bar..
m. Net Capital Violations
No cases decided in 2011.
n. Trading Practice Violations/Market Manipulation
No cases decided in 2011.
Q.2.l
448