FINRA

FINRA RULES 2010 AND 8210 AND NASD RULE 2370: KAPASI BORROWED $6,000 FROM HIS MEMBER FIRM CUSTOMERS. IN EXCHANGE FOR THE $6,000, KAPASI PROVIDED HIS CUSTOMERS WITH A TANZANITE STONE AS COLLATERAL AND A HAND-WRITTEN CONTRACT SETTING FORTH THE TERMS OF THE LOAN AND THE ESTIMATED VALUE OF THE TANZANITE STONE. KAPASI'S FIRM HAD WRITTEN PROCEDURES PROHIBITING ITS REGISTERED REPRESENTATIVES FROM BORROWING FUNDS FROM CUSTOMERS. THE PROCEDURES PERMITTED THE FIRM TO GRANT LIMITED EXCEPTIONS TO THIS PROHIBITION ON LOANS FOR EMPLOYEES' FAMILY MEMBERS. KAPASI DID NOT SEEK APPROVAL FROM HIS FIRM FOR THE $6,000 LOAN HE ACCEPTED FROM THE CUSTOMERS AND THE CUSTOMERS WERE NOT RELATIVES OF KAPASI, THEREFORE THE LOAN WOULD NOT HAVE SATISFIED THE FIRM'S LIMITED EXCEPTION ON LOANS FOR EMPLOYEES' FAMILY MEMBERS AND THE FIRM DID NOT APPROVE THE LOAN. ALTHOUGH KAPASI DID NOT REPAY THE LOAN BY THE DATE SET FORTH IN THE CONTRACT, KAPASI EVENTUALLY REPAID THE CUSTOMERS THE ENTIRE LOAN AMOUNT OF $6,000. UPON REPAYMENT OF THE LOAN, KAPASI TOOK BACK THE HAND-WRITTEN CONTRACT AND TANZANITE STONE FROM THE CUSTOMERS. IN RESPONSE TO A FINRA REQUEST FOR AMONG OTHER THINGS, THAT KAPASI DESCRIBE THE TERMS OF ANY LOANS HE RECEIVED FROM ANY CLIENT OF HIS FIRM, KAPASI STATED HE DID NOT RECEIVE ANY LOANS FROM ANY CLIENT OF HIS FIRM. KAPASI PROVIDED FALSE INFORMATION TO FINRA IN RESPONSE TO A REQUEST MADE PURSUANT TO FINRA RULE 8210. KAPASI HAS NOT RESPONDED TO FINRA'S REQUESTS FOR DOCUMENTS AND INFORMATION RELATED TO ITS INVESTIGATION OF WHETHER KAPASI BORROWED MONEY FROM HIS CUSTOMERS AND WHETHER HE PARTICIPATED IN A POSSIBLE UNDISCLOSED OUTSIDE BUSINESS ACTIVITY.

Decision

Bar (Permanent)

All Capacities

7/14/2014

Monetary Penalty other than Fines

$2,784.29

HEARING PANEL DECISION RENDERED MAY 27, 2014. THE SANCTIONS WERE BASED ON FINDINGS THAT KAPASI PROVIDED FALSE STATEMENTS TO FINRA REQUESTS FOR INFORMATION AND DOCUMENTS. THE FINDINGS STATED THAT KAPASI FAILED TO RESPOND TO FINRA REQUESTS FOR ADDITIONAL INFORMATION AND DOCUMENTS. THE FINDINGS ALSO STATED THAT KAPASI BORROWED $6,000 FROM HIS CUSTOMERS, REPAID THEM THE ENTIRE LOAN AMOUNT, AND, UPON REPAYMENT, TOOK BACK FROM THEM THE HAND-WRITTEN CONTRACT AND THE TANZANITE STONE HE HAD PROVIDED THEM, IN EXCHANGE FOR THE LOAN, AND DESTROYED THE CONTRACT. KAPASI ALSO STRUCTURED THE LOAN ARRANGEMENT IN A MANNER TO AVOID DETECTION BY HIS MEMBER FIRM THAT HAD WRITTEN PROCEDURES PROHIBITING ITS REGISTERED REPRESENTATIVES FROM BORROWING FUNDS FROM CUSTOMERS. KAPASI WAS AWARE THAT THE FIRM PROHIBITED BORROWING FUNDS FROM CUSTOMERS AND THAT FINRA'S RULES PROHIBITED IT AS WELL. KAPASI DID NOT SEEK APPROVAL FROM THE FIRM FOR THE LOAN, AND THE FIRM DID NOT APPROVE IT. LATER, WHEN KAPASI'S FIRM CONDUCTED AN INVESTIGATION, KAPASI LIED TO THE FIRM AND SAID HE HAD NOT BORROWED FUNDS FROM ANY CUSTOMERS. THE DECISION BECAME FINAL JULY 14, 2014.