The NASD suspended a former Commerce Capital Markets broker for four months and fined him $5,000 for his involvement in a so-called “parking scheme” designed to inflate bond prices.
William Fleno, from Bridgewater, N.J., worked at Capital Markets from December 2003 until August 2004, when he was fired. The NASD has since connected him to a fraudulent parking scheme engineered by Steven Schlesinger who, at that time, was a registered municipal securities principal and rep at an unidentified firm. Schlesinger allegedly set the prices and settlement dates with traders he knew, promised them a modest profit and assured them that there was no risk of loss because he knew the prices he set did not reflect the actual value of the bonds. The NASD found that Fleno purchased bonds at Schlesinger's request and parked them in his member firm's proprietary account for several days, at which point Schlesinger purchased them back. Fleno neither confirmed nor denied the charges. Parking bonds is a violation of MSRB rules on reports of sales and purchases and on fair dealing.
Barred for Life
Carolyn Sue Callahan, a former registered rep at Brecek & Young Advisors in South Bend, Ind., was barred from the industry for committing fraud. The sanction was based on findings that Callahan received $45,000 from a client for the purchase of mutual fund shares. But rather than buy the shares, Callahan forged the fund issuer's endorsement on the checks and deposited the funds into her own business checking account. In December 2005, Callahan was sentenced to five years probation by a Michigan judge and was ordered to pay $67,000 in restitution and perform 200 hours of community service.
Naked Short Sales Cost Goldman $2 Million
The SEC and NYSE Regulation settled enforcement proceedings against a prime broker and clearing affiliate of Goldman Sachs for an illegal short-selling scheme. Both cases found that Goldman allowed customers to profit by illegally selling stocks short just ahead of public offerings of the companies' securities. As much as company management may dislike it, while shorting is perfectly legal, naked short selling — selling stock you don't own — is not. Goldman Sachs Execution and Clearing was forced to pay a $2 million fine for allowing customers to place orders through its direct market access system, and falsely mark the orders “long” when the customers were, in fact, selling short. Goldman then lent them borrowed and proprietary securities to settle the trades.
Raymond James Fined $2.75 Million
NASD fined Raymond James Financial Services $2.75 million for failing to maintain an adequate supervisory system to oversee the sales activities of more than 1,000 producing branch managers working in its U.S. offices.