Initiated By
FINRA
Allegations
FINRA RULES 2010, 3130, NASD RULES 2110, 3010, 3012, MSRB RULE G-27: A MEMBER FIRM, ACTING THROUGH GAUL AND ANOTHER FIRM PRINCIPAL, NEGLIGENTLY OMITTED MATERIAL FACTS IN CONNECTION WITH ITS SALES OF PROMISSORY NOTES. THE NOTES WERE ISSUED BY AN ENTITY WHICH WAS CONTROLLED BY A REAL ESTATE DEVELOPER. THE FIRM, ACTING THROUGH GAUL AND ANOTHER FIRM PRINCIPAL, NEGLIGENTLY FAILED TO DISCLOSE TO INVESTORS THAT THE ENTITY HAD BEEN EXPERIENCING CASH FLOW PROBLEMS AND THAT THE ENTITY AND OTHER COMPANIES AFFILIATED WITH THE REAL ESTATE DEVELOPER HAD FAILED TO MAKE REQUIRED INTEREST PAYMENTS TO INVESTORS. IN ADDITION, THE FIRM, ACTING THROUGH GAUL AND ANOTHER FIRM PRINCIPAL, NEGLIGENTLY FAILED TO DISCLOSE THAT IT WAS UNLIKELY THAT THE ENTITY'S AFFILIATED COMPANY WOULD BE ABLE TO MAKE ITS SCHEDULED PRINCIPAL PAYMENTS TOTALING $10 MILLION THAT WERE DUE TO ITS NOTE HOLDERS. THE FIRM, ACTING THROUGH GAUL, FAILED TO ESTABLISH, MAINTAIN AND ENFORCE A SYSTEM OF SUPERVISORY CONTROL POLICIES AND PROCEDURES THAT (A) TESTED AND VERIFIED THAT ITS SUPERVISORY PROCEDURES WERE REASONABLY DESIGNED WITH RESPECT TO THE ACTIVITIES OF THE FIRM AND ITS REGISTERED REPRESENTATIVES AND ASSOCIATED PERSONS TO ACHIEVE COMPLIANCE WITH APPLICABLE SECURITIES LAWS AND REGULATIONS AND (B) CREATE ADDITIONAL OR AMENDED SUPERVISORY PROCEDURES WHERE THE NEED WAS IDENTIFIED BY SUCH TESTING AND VERIFICATION. THE FIRM'S SUPERVISORY CONTROL POLICIES AND PROCEDURES FAILED TO IDENTIFY PRODUCING MANAGERS AND ASSIGN QUALIFIED PRINCIPALS TO SUPERVISE SUCH MANAGERS. THE FIRM ALSO FAILED TO ELECTRONICALLY NOTIFY FINRA OF ITS RELIANCE ON THE "LIMITED SIZE AND RESOURCES" EXCEPTION. FOR THE YEAR-END 2008, THE FIRM, ACTING THROUGH GAUL, FAILED TO PREPARE AN ANNUAL CERTIFICATION FROM ITS CHIEF EXECUTIVE OFFICER (CEO) (OR EQUIVALENT OFFICER) THAT IT HAD IN PLACE PROCESSES TO ESTABLISH, MAINTAIN, REVIEW, TEST AND MODIFY WRITTEN COMPLIANCE POLICIES AND WRITTEN SUPERVISORY PROCEDURES REASONABLY DESIGNED TO ACHIEVE COMPLIANCE WITH APPLICABLE FINRA RULES, MSRB RULES AND FEDERAL SECURITIES LAWS AND REGULATIONS, AND THAT THE CEO HAD CONDUCTED ONE OR MORE MEETINGS WITH THE FIRM'S CHIEF COMPLIANCE OFFICER IN THE PRECEDING TWELVE MONTHS TO DISCUSS SUCH PROCESSES. IN ADDITION, FOR THE YEAR-END 2009, THE FIRM, ACTING THROUGH GAUL, FILED AN ANNUAL CERTIFICATION THAT DID NOT FULLY COMPLY WITH FINRA RULE 3130(C). THE FIRM, ACTING THROUGH GAUL, ALSO FAILED TO ESTABLISH, MAINTAIN AND/OR ENFORCE WRITTEN SUPERVISORY PROCEDURES REASONABLY DESIGNED TO ACHIEVE COMPLIANCE WITH THE LAWS AND REGULATIONS APPLICABLE TO ITS BUSINESS IN CONDUCTING PRIVATE PLACEMENT OFFERINGS (INCLUDING TRAINING REPRESENTATIVES REGARDING THE RISKS FOR THESE OFFERINGS AND ESTABLISHING STANDARDS FOR DETERMINING THE SUITABILITY OF THESE OFFERINGS FOR INVESTORS), THE REVIEW OF ELECTRONIC CORRESPONDENCE, AND THE REVIEW AND APPROVAL OF ADVERTISING MATERIALS.
Resolution
Acceptance, Waiver & Consent(AWC)
Sanctions
Civil and Administrative Penalty(ies)/Fine(s)
Amount
$10,000.00
Sanctions
Suspension
Registration Capacities Affected
ALL CAPACITIES
Duration
30 BUSINESS DAYS
Start Date
11/7/2011
End Date
12/19/2011
Registration Capacities Affected
ANY PRINCIPAL CAPACITY
Duration
18 MONTHS
Start Date
11/7/2011
End Date
5/6/2013
Regulator Statement
WITHOUT ADMITTING OR DENYING THE FINDINGS, GAUL CONSENTED TO THE DESCRIBED SANCTIONS AND TO THE ENTRY OF FINDINGS; THEREFORE HE IS FINED $10,000, SUSPENDED FROM ASSOCIATION WITH ANY FINRA MEMBER IN ANY CAPACITY FOR 30 BUSINESS DAYS, AND SUSPENDED FROM ASSOCIATION WITH ANY FINRA MEMBER IN ANY PRINCIPAL CAPACITY FOR 18 MONTHS. THE FINE SHALL BE DUE AND PAYABLE EITHER IMMEDIATELY UPON REASSOCIATION WITH A MEMBER FIRM FOLLOWING THE 30 BUSINESS DAY SUSPENSION, OR PRIOR TO ANY APPLICATION OR REQUEST FOR RELIEF FROM ANY STATUTORY DISQUALIFICATION RESULTING FROM THIS OR ANY OTHER EVENT OR PROCEEDING, WHICHEVER IS EARLIER. THE SUSPENSION IN ANY CAPACITY IS IN EFFECT NOVEMBER 7, 2011 THROUGH DECEMBER 19, 2011. THE SUSPENSION IN ANY PRINCIPAL CAPACITY IS IN EFFECT NOVEMBER 7, 2011 THROUGH MAY 6, 2013.