FINRA fined brokerage firm Finance 500, Inc. (Irvine, CA) $400,000 and barred a number of its former brokers over AML, supervisory, and other violations pertaining to failures in penny stock sales, including a charge that the firm failed to capture and maintain electronic communication records, such as instant messages or e-mails.
The findings state that because low-priced securities such as penny stocks are subject to a higher risk of fraudulent activity, the firm should have implemented programs and procedures specifically tailored to this business.
Instead, investigators determined that former Finance 500 owner, President, CEO and Chief Compliance Officer Robert Lansing Hicks failed to appropriately delegate compliance responsibility, including multiple failures to implement adequate anti-money laundering (AML), customer identification (CIP) and similar programs. FINRA previously fined and suspended former Finance 500 Vice President of Corporate Finance William Henry Watson III for using unfair and unbalanced marketing materials, and for making misleading or unwarranted statements.
FINRA found that the firm failed to identify and/or act on some red flags of suspicious activity because of inadequate monitoring. For instance, the record indicates that Finance 500 executed market making trades in Fibrocell Science, Inc. (FCSC) stock on behalf of John Carris Investments (JCI), allowing JCI to simultaneously route identical buy and sell orders of FCSC to Finance 500 on at least 60 separate occasions, all without Finance 500 identifying and/or acting on anything suspicious.
This is all significant because in 2015, FINRA expelled John Carris Investments and barred CEO George Carris for fraud and recklessness related to a series of misconduct, including willful price manipulation constituting securities fraud.
In another instance, Finance 500 purportedly opened 300 accounts without verifying the account holders' identities: the account holders resided in Vietnam and opened accounts to liquidate shares of a NASDAQ-listed Vietnamese construction and mining company.
FINRA states that over a four year period, the firm also failed to preserve certain business-related electronic communications, such as instant messages known as Bloomberg Messages, which is a common system in the financial market. Investigators also found that some books and records were maintained inaccurately because some brokers altered information on account paperwork after the customer had already signed the documents.
If you have invested with Irvine, California-based Finance 500, Inc. or with any broker or financial adviser whose deficient penny stock programs, policies, or procedures—such as AML, CIP, or similar failures related to an inability to preserve communication records such as messages or e-mails—have proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.