Securities Fraud Roundup: EKN Financial Services Expelled from FINRA, SRO’s CEO Says Complex Products Should Be Subject to Stricter Scrutiny, and Federal Regulators Now Paying Closer Attention to Securities Law Violations that Lead to Victim Hardships

The Financial Industry Regulatory Authority has expelled EKN Financial Services for a number of compliance violations and for letting firm CEO Anthony Ottimo act in the capacity of supervisor even after the Securities and Exchange Commission had barred him from doing so in 2008. FINRA has barred Ottimo from the securities industry, in addition to barring ex-EKN President Thomas Giugliano from working in a principal role. The SRO contends that through Ottimo and Giugliano, EKN violated a number of SEC and NASD/FINRA rules and federal securities laws, including those involving net capital deficiencies, anti-money laundering violations, and reporting failures.

According to FINRA, from 2008 to 2011 Ottimo took on a supervisory role despite the SEC bar. He also continued to serve as CEO even though he wasn’t a registered principal. Meantime, Giugliano and the financial firm are accused of misrepresenting to FINRA that Ottimo wasn’t serving in these roles. The SRO also found that EKN made numerous anti-money laundering violations, such as not setting up a satisfactory AML compliance program to identify and report suspect activity, preparing net capital computations that were not accurate, failing to properly report net capital deficiencies, not accurately detailing liabilities and cost in its records and books, and neglecting to tell FINRA that Giugliano and Ottimo had hundreds of thousands of dollars in liens and judgments that hadn’t been satisfied.

Federal regulators have lately been more alert to potential securities law violations because of the devastating effect such misconduct can have on the lives of victims. Other examples include boiler room scams, affinity fraud, accounting fraud, misappropriation, and Ponzi schemes, which are just some of the violations that target individual investors, including the elderly and the sick, draining many of them of their life savings. Many such violations that impact investors directly are ones generally involving more low profile incidents that the public doesn’t usually hear about.

Speaking at a Practising Law Institute conference on October 2, Andrew M. Calamari, the acting director of the SEC New York Regional Office noted that last year the Commission brought 150 actions against registered investment companies and investment advisers, while 112 cases against brokerage firms were announced.

The need to protect retail investors is also leading to a closer scrutiny of complex financial products, which have lately become more attractive to retail investors because their returns are currently higher than more traditional financial instruments.

At the Securities Industry and Financial Markets Association conference last month, FINRA SEO and Chairman Richard G. Ketchum offered a working definition of a “complex product” from a supervisory perspective as a financial product with return and risk rates that can be impacted by market conditions in ways that average retail investors don’t fully understand. He observed that while in many cases the sale of these products to retail investors is appropriate, these regulated entities must still properly examine and service these financial instruments prior to (and after) their sale to make sure they are in compliance with current standards. Ketchum also stressed the importance of making sure sales teams, supervisors, and financial advisers are adequately trained and supervised and that investors are provided with the necessary disclosures that they are able to comprehend.

If you are an investor who believes that broker negligence or misconduct may have caused your losses, contact our securities law firm today.

FINRA Expels EKN Financial Services for Defying SEC Order and For Numerous Compliance Violations, FINRA, October 18, 2012

Complex Products Merit Heightened Scrutiny From Brokerages, Advisers, FINRA Chief Says, BNA/Bloomberg, October 3, 2012

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Institutional Investment Fraud Roundup: Ex-Analyst Guilty in $61.8M Insider Trading Scheme, SLUSA Precludes Investor Class Action Over Hedge Funds that Failed After Madoff Ponzi, & Dark Pool Operator Settles Subscriber Info. Breach Charges, Institutional Investor Securities Blog, October 18, 2012