Investment Firm and Its CEO Are Expelled and Barred for Inflating the Price of Shares Before Selling Them
The Financial Industry Regulatory Authority has expelled Hallmark Investments and barred Steven G. Dash, who is the firm’s CEO, over a securities scam that involved selling stocks at inflated prices. According to the self-regulatory organization, Hallmark, Dash, and firm representative Stephen P. Zipkin used an outside broker-dealer and engaged in manipulative trading, as well as in trade confirmations that were misleading, to sell almost 40,000 shares of stock to 14 customers at prices that were fraudulently inflated. Zipkin has been suspended by FINRA for two years and he will have to pay over $18K in restitution.
Hallmark purportedly employed a trading scam to sell the Avalanche shares that they owned at $3/share. Meantime, the prices for Avalanche were selling at the public offering price of $2.05/share and Hallmark sold other Avalanche shares to other customers for as low as 80 cents/share. Also, the investment firm, Zipkin, and Dash failed to tell customers that Hallmark owned the shares they were buying or that it was marking up the transactions (or that the shares could be bought for less on the open market) even as it sold the shares to others at lower prices.
FSC Securities To Pay Fine, Restitution to Investors Over Non-Traditional ETF Sales
In a deal with FINRA, FSC Securities Corp. will pay back clients over $492K for losses, as well as a $100K fine, to resolve the claim that the firm failed to properly supervise the sale of inverse and leveraged exchange-traded funds from 1/2009 through 9/2014. According to the self-regulatory organization, it was during this time period that its clients bought 6,500 ETF purchases worth about $92M in 1400 accounts. This generated about $603K in commissions.
When FINRA put out a warning about non-traditional ETFs that were being held for longer than a day, FSC ceased the sale of 3x leveraged ETFs during the latter part of 2009. However, it kept on selling 2x products and other products that weren’t as leveraged. Now, the SRO is saying that FSC neglected to put in place a system or process that would have monitored or assessed the holding period lengths. FINRA contends that FSC representatives made unsuitable ETF recommendations to customers, including to elderly clients and those who could only handle low risks or conservative investments, even though these ETF investments were risky.
The SRO said that even after the firm started monitoring holding periods in 2012, supervisors were not issued guidance on how to assess the risks involved in long-term holdings. Also, FSC purportedly let registered representatives recommend the ETFs to customers without putting into place a supervisory system that could make sure that these recommendations made sense for the clients. It wasn’t until October 2014 that FSC restricted the sale of all inverse and leveraged ETFs excepted in limited circumstances.
Now, the firm is settling FINRA’s charges but is not denying or admitting to the allegations.
ETF Fraud Settlements
In 2016, FINRA fined Oppenheimer & CO. (OPY) $2.25M and ordered the firm to pay $716K in restitution over exchange-traded fund investments. The year before, LPL Financial (LPLA) consented to pay $1.66M in restitution and a $10M fine to ETF customers. Earlier this year, Morgan Stanley Smith Barney was fined $8M by the US Securities and Exchange Commission. The broker-dealer admitted wrongdoing in that it failed to make sure clients comprehended the risks involved with single inverse ETFs. In 2012, FINRA sanctioned parent company Morgan Stanley & Co. LLC (MS) over nontraditional ETF sales.