FINRA

RESPONDENT SCHMERMAN FAILED TO COMPLY WITH AN ARBITRATION AWARD OR SETTLEMENT AGREEMENT OR TO SATISFACTORILY RESPOND TO A FINRA REQUEST TO PROVIDE INFORMATION CONCERNING THE STATUS OF COMPLIANCE.

LETTER

Suspension

ANY CAPACITY

N/A

8/22/2013

PURSUANT TO ARTICLE VI, SECTION 3 OF FINRA BY-LAWS, AND FINRA RULE 9554, RESPONDENT SCHMERMAN IS SUSPENDED AUGUST 22, 2013 FOR FAILURE TO COMPLY WITH AN ARBITRATION AWARD OR SETTLEMENT AGREEMENT OR TO SATISFACTORILY RESPOND TO A FINRA REQUEST TO PROVIDE INFORMATION CONCERNING THE STATUS OF COMPLIANCE.

1) negligence; 2) Arizona Securities Act violations; 3) federal securities violation; 4) breach of fiduciary duty; 5) breach of contract and breach of the implied duty of good faith and fair dealing; 6) negligent misrepresentation; 7) common law fraud and intentional misrepresentation; 8) conversion; and 9) failure to supervise

$373,390.00

The Award has not been paid.

FINRA

FINRA BY-LAWS ARTICLE V, SECTION 2(C), FINRA RULES 1122, 2010, 8210, NASD RULE 2110, AND INTERPRETATIVE MATERIAL-1000-1: SCHMERMAN MISUSED FUNDS BELONGING TO AN INDIVIDUAL AND/OR ANOTHER INDIVIDUAL WITHOUT THEIR KNOWLEDGE, CONSENT OR AUTHORIZATION. SCHMERMAN FAILED TO INVEST THE INDIVIDUALS' FUNDS IN A FINRA MEMBER FIRM'S BROKERAGE ACCOUNTS AS REPRESENTED, AND AS THE INDIVIDUALS INTENDED AND BELIEVED. ONE OF THESE INDIVIDUALS TENDERED $175,000 TO SCHMERMAN FOR INVESTMENT PURPOSES, WHICH SCHMERMAN DEPOSITED INTO HIS BUSINESS BANK ACCOUNT. SCHMERMAN TOLD THE INDIVIDUAL THAT HER INVESTMENT FUNDS WERE HELD IN AN INSTITUTIONAL BROKERAGE ACCOUNT WITH THE MEMBER FIRM. SCHMERMAN PROVIDED THE INDIVIDUAL WITH ACCOUNT STATEMENTS AND MADE REGULAR MONETARY DISTRIBUTIONS TO HER WITH FUNDS PURPORTEDLY FROM HER BROKERAGE ACCOUNT WITH THE MEMBER FIRM; THE INDIVIDUAL GIFTED THE FUNDS REMAINING IN HER PURPORTED BROKERAGE ACCOUNT, TOTALING APPROXIMATELY $117,204, TO THE OTHER INDIVIDUAL. SCHMERMAN ADVISED THAT THE FUNDS WERE TRANSFERRED TO A MEMBER FIRM INSTITUTIONAL BROKERAGE ACCOUNT THAT HE HAD ESTABLISHED IN THE OTHER INDIVIDUAL'S NAME. SCHMERMAN PROVIDED THE INDIVIDUAL WITH ACCOUNT STATEMENTS AND MADE REGULAR DISTRIBUTIONS TO HER WITH FUNDS PURPORTEDLY FROM HER THE BROKERAGE ACCOUNT. IN FEBRUARY 2010, AFTER SCHMERMAN FAILED TO MAKE REQUESTED DISTRIBUTIONS FROM THE BROKERAGE ACCOUNT, THE INDIVIDUAL CONTACTED THE BROKERAGE FIRM DIRECTLY. AT THAT TIME, THE BROKERAGE FIRM TOLD THE INDIVIDUAL THAT HER BROKERAGE ACCOUNT HAD NEVER BEEN FUNDED. SIMILARLY, THE INITIAL INDIVIDUAL'S INVESTMENT FUNDS, PRIOR TO BEING GIFTED TO THE OTHER INDIVIDUAL, HAD NEVER BEEN HELD IN A BROKERAGE ACCOUNT OF THE BROKERAGE FIRM; BY MID-MARCH 2010 ALL OF THE INDIVIDUAL'S INVESTMENT FUNDS HAD BEEN RETURNED TO HER. SCHMERMAN FAILED TO RESPOND TO FINRA REQUESTS FOR INFORMATION AND DOCUMENTS. SCHMERMAN FAILED TO AMEND HIS FORM U4 TO DISCLOSE MATERIAL FACTS, A TAX LIEN AND A JUDGMENT LIEN. SCHMERMAN COMPLETED HIS MEMBER FIRM'S ANNUAL COMPLIANCE QUESTIONNAIRES AND RESPONDED "NO" TO A QUESTION WHICH ASKED, IF IN THE PAST YEAR HAVE ANY JUDGMENTS OR TAX LIENS BEEN ENTERED AGAINST YOU.

Acceptance, Waiver & Consent(AWC)

Bar (Permanent)

All Capacities

8/15/2011

WITHOUT ADMITTING OR DENYING THE FINDINGS, SCHMERMAN CONSENTED TO THE DESCRIBED SANCTION AND TO THE ENTRY OF FINDINGS; THEREFORE, HE IS BARRED FROM ASSOCIATION WITH ANY FINRA MEMBER IN ANY CAPACITY.

ARIZONA CORPORATION COMMISSION SECURITIES DIVISION

RICHARD SCHMERMAN ENGAGED IN DISHONEST AND UNETHICAL PRACTICES AND COMMITTED FRAUD IN THE PROVISION OF INVESTMENT ADVISORY SERVICES. SCHMERMAN INDIVIDUALLY AND D/B/A DIVERSIFIED FINANCIAL AND/OR DIVERSIFIED FINANCIAL PLANNERS UTILIZED HIS CLIENTS' FUNDS FOR HIS OWN PERSONAL BENEFIT,(FOR THE PERIOD JANUARY 1,2005 TO APRIL 30,2011 OUT OF THE $5,025,495.00 DEPOSITED BY DIVERSIFIED, 82% OF ALL OF THE FUNDS CAME FROM INVESTORS OR INDIVIDUALS AND TRUSTS AND ONLY $48,953 WAS DISBURSED IN INVESTING ACTIVITY WITH SCHMERMAN RECEIVING IN EXCESS OF $3.2 MILLION DOLLARS OF THE FUNDS. SCHMERMAN USED LATER INVESTORS' FUNDS TO PAY OFF EARLIER INVESTORS; INVESTORS WERE REPAID $695,424).

Decision

Cease and Desist

Civil and Administrative Penalty(ies)/Fine(s)

$200,000.00

Denial

Restitution

$3,009,173.32

Revocation