FINRA

NASD RULES 2110, 2310: CHEN ENGAGED IN UNAUTHORIZED TRADING IN THREE CUSTOMERS' ACCOUNTS. TWO OF THE CUSTOMERS WERE DEAD AT THE TIME THE TRADES WERE PLACED AND EXECUTED; A CUSTOMER HAD A NON-DISCRETIONARY IRA ACCOUNT AND THE OTHER HAD A NON-DISCRETIONARY INVESTMENT ACCOUNT. AFTER THE CUSTOMER'S DEATH, CHEN PLACED TRADES IN THE CUSTOMER'S IRA ACCOUNT, PURCHASING ALMOST $29,000 IN SECURITIES AND ALL BUT DEPLETING THE AVAILABLE CASH IN THE ACCOUNT. AFTER THE OTHER CUSTOMER'S DEATH, CHEN SOLD SHARES OF STOCK, GENERATING PROCEEDS OF $6,201.91, FROM THE INVESTMENT ACCOUNT. THE THIRD CUSTOMER WAS A SELF-EMPLOYED ACCOUNTANT WITH A NON-DISCRETIONARY TRUST ACCOUNT AND SPECIFICALLY INSTRUCTED CHEN NOT TO MAKE ANY PURCHASES FROM HER ACCOUNT BECAUSE SHE NEEDED THE CASH TO PAY TAXES AND INTENDED TO INVEST IN HER EMPLOYEE PENSION ACCOUNT. THREE WEEKS AFTER THAT INSTRUCTION, CHEN USED ALL OF THE CASH IN THE ACCOUNT TO PURCHASE APPROXIMATELY $75,000 IN MUTUAL FUNDS. CHEN MADE UNSOLICITED RECOMMENDATIONS AND EFFECTED UNSUITABLE REVERSE CONVERTIBLE NOTE (RCN) TRANSACTIONS FOR CUSTOMERS. RCNS ARE COMPLEX, HIGHLY VOLATILE STRUCTURED PRODUCTS. CONSEQUENTLY, THEY ARE NOT SUITABLE FOR INVESTORS WHO HAVE LITTLE OR NO INVESTMENT EXPERIENCE, CONSERVATIVE INVESTMENT OBJECTIVES OR LOW RISK TOLERANCE. BECAUSE REVERSE CONVERTIBLES ARE COMPLEX INVESTMENTS, THE MEMBER FIRM REQUIRED ALL OF ITS SALES PROFESSIONALS, INCLUDING CHEN, TO TAKE AN IN-HOUSE REVERSE CONVERTIBLES COURSE BEFORE THE REPRESENTATIVES COULD OFFER REVERSE CONVERTIBLES TO SUITABLE CLIENTS. HAVING COMPLETED THE COURSE, CHEN WOULD UNDERSTAND THAT REVERSE CONVERTIBLES ARE SUITABLE FOR SOPHISTICATED INVESTORS. MOST OF THE RCN CUSTOMERS WERE RETIRED, LIVING ON A FIXED INCOME AND HAD LITTLE OR NO INVESTING EXPERIENCE. NONE OF THE RCN CUSTOMERS HAD EVER INVESTED IN A COMPLEX PRODUCT LIKE A REVERSE CONVERTIBLE. MANY OF THE RCN CUSTOMERS DESCRIBED THEMSELVES AS HAVING A "LOW" RISK TOLERANCE, AND LISTED THEIR INVESTMENT GOALS AS CONSERVATIVE INCOME AND PRESERVATION OF CAPITAL OR INCOME. IN SOME CASES, CHEN CHANGED THE RISK TOLERANCE FROM "LOW" RISK TO "MEDIUM" SO THAT THE CUSTOMERS' RCN PURCHASES WOULD BE APPROVED BY THE FIRM. CHEN RECOMMENDED REVERSE CONVERTIBLES INDISCRIMINATELY TO CUSTOMERS. CHEN DID NOT STOP WITH THE INITIAL RECOMMENDATION TO HIS CUSTOMERS TO BUY RCNS; RATHER, HE STEADILY BUILT UP THE CONCENTRATION OF RCNS IN THE CUSTOMERS' ACCOUNTS OVER TIME SUCH THAT MOST OF THE RCN CUSTOMERS HAD ALL, OR CLOSE TO ALL, OF THE ASSETS IN THEIR ACCOUNTS INVESTED IN RCNS. CHEN WAS SO RELENTLESS IN SWITCHING HIS CUSTOMERS INTO RCNS THAT HE WAS THE FIRM'S SECOND-HIGHEST PRODUCER OF RCN REVENUE ONE YEAR, AND THE NEXT YEAR WAS THE FIRM'S HIGHEST RCN REVENUE PRODUCER. CHEN WAS PROMOTED TO VICE PRESIDENT AND SENIOR FINANCIAL CONSULTANT. CHEN CONTINUED AGGRESSIVELY PROMOTING RCNS UNTIL THE FIRM DEMANDED THAT HE REDUCE HIS CUSTOMERS' CONCENTRATIONS IN THE PRODUCT. CHEN'S UNSUITABLE RECOMMENDATIONS RESULTED IN SIGNIFICANT INCOME FOR HIM AND LOSSES FOR MANY OF HIS CUSTOMERS. WHEN THE REFERENCE ASSET FOR A PARTICULAR RCN DECLINED, CHEN'S CUSTOMERS WERE PUT THE STOCK. THE MARKET VALUE OF THE STOCK WAS ALWAYS, AND SOMETIMES SIGNIFICANTLY, LESS THAN THE VALUE OF THE RCN CUSTOMER'S INITIAL PRINCIPAL INVESTMENT. ON SOME OCCASIONS, WHEN RCN CUSTOMERS WERE PUT THE STOCK, CHEN RECOMMENDED THAT THEY SELL THE STOCK AND USE THE PROCEEDS TO BUY MORE RCNS. IN THOSE TRANSACTIONS, THE RCN CUSTOMERS PAID COMMISSIONS TO SELL THE STOCK PUT TO THEM, AND CHEN ALSO GOT PAID WHEN THE NEW REVERSE CONVERTIBLES WERE PURCHASED WITH THE PROCEEDS FROM THE STOCK SALE. CHEN WAS HIGHLY PAID FOR HIS UNSUITABLE RECOMMENDATIONS. CHEN'S RECOMMENDATIONS TO PURCHASE RCNS RESULTED IN APPROXIMATELY $192,945.25 IN GROSS DEALER COMMISSIONS AND CHEN RECEIVED APPROXIMATELY $69,000 FOR THESE TRANSACTIONS.

Decision & Order of Offer of Settlement

Bar (Permanent)

All Capacities

Indefinite

5/30/2012

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