Initiated By
FINRA
Allegations
FINRA RULE 2010, NASD RULE 3010 - DAPHNE MAHLE, AS HER MEMBER FIRM'S CHIEF COMPLIANCE OFFICER, WAS RESPONSIBLE FOR THE FIRM'S SUPERVISORY SYSTEM AND WRITTEN SUPERVISORY PROCEDURES (WSPS). MAHLE FAILED TO IMPLEMENT REASONABLE HIRING AND SUPERVISION POLICIES AND PROCEDURES IN THAT HER MEMBER FIRM, ACTING THROUGH MAHLE, FAILED TO CONDUCT A REASONABLE INQUIRY REGARDING A PROSPECTIVE REGISTERED REPRESENTATIVE WHOSE CREDIT REPORT CALLED INTO QUESTION HIS FINANCIAL RESPONSIBILITY AND WHETHER HE SHOULD CONTROL A MULTI-MILLION DOLLAR BUSINESS HE CLAIMED TO BE ABLE TO BRING TO THE FIRM. MAHLE DID NOT EVEN ASK HIM ABOUT HIS CREDIT CARD DEFAULTS. A PRE-HIRE CHECK ON ANOTHER INDIVIDUAL DISCLOSED THAT HE HAD DEFAULTED ON A MORTGAGE LOAN AND THE FIRM, ACTING THROUGH MAHLE, FAILED TO CONDUCT A REASONABLE INQUIRY. MAHLE ALSO OBTAINED INFORMATION DURING A PRE-HIRE INVESTIGATION THAT A THIRD, NON-REGISTERED, INDIVIDUAL WAS PAID A PORTION OF COMMISSIONS GENERATED FROM BUSINESS WITH FOREIGN CUSTOMERS BUT THE TRADES ON A COMMISSION BLOTTER WERE PURPORTEDLY MADE BY INSTITUTIONAL CUSTOMERS THE FIRM EXPECTED THE PROSPECTIVE REPRESENTATIVE WOULD INTRODUCE TO THE FIRM. MANY OF THE TRADES WERE TRANSACTED BEFORE HIS EFFECTIVE DATE OF REGISTRATION WITH THE FIRM WHERE HE AND THE UNREGISTERED REPRESENTATIVE WERE ASSOCIATED PRIOR TO THE REPRESENTATIVE'S MOVE TO MAHLE'S MEMBER FIRM. AFTER THE PROSPECTIVE REPRESENTATIVE BECAME REGISTERED WITH THE FIRM AND BEGAN EARNING HUNDREDS OF THOUSANDS OF DOLLARS IN COMMISSIONS, HE TOOK STEPS TO ENSURE THE FIRM DID NOT DIRECTLY COMPENSATE HIM AND ARRANGED FOR A COMMISSION ASSIGNMENT AGREEMENT WITH THE SECOND INDIVIDUAL WHO HAD ALSO BECOME REGISTERED WITH THE FIRM. THE FIRST COMMISSION CHECK FOR $248,275.56 WAS DRAWN UNDER THE AGREEMENT AND PAYABLE TO THE SECOND REPRESENTATIVE IN CARE OF A CORPORATION ALTHOUGH MAHLE LEARNED THE REPRESENTATIVE HAD FILED FOR PERSONAL BANKRUPTCY BUT CONTINUED TO DIRECT COMMISSION PAYMENTS TO THE OTHER REPRESENTATIVE. AFTER CONDUCTING AN INSPECTION OF THE BRANCH OFFICE, MAHLE OBTAINED BANK STATEMENTS OF A CORPORATION AND LEARNED THAT $339,000 WAS SENT FROM THE CORPORATION TO ANOTHER COMPANY BY WIRE TRANSFERS FOR PURPORTED TECHNOLOGY CONSULTING FEES WHICH MAHLE SHOULD HAVE RECOGNIZED AS A STRAW PARTY FOR THE PAYMENT OF COMMISSIONS TO THE UNREGISTERED REPRESENTATIVE. MAHLE FAILED TO DETECT THAT THE FEES WERE EXORBITANT AND THE DIRECTOR OF THE TECHNOLOGY CONSULTING COMPANY WAS THE UNREGISTERED REPRESENTATIVE'S RELATIVE. THE REPRESENTATIVE THAT HAD FILED FOR BANKRUPTCY PLACED RISKLESS PRINCIPAL TRADES IN SOVEREIGN DEBT WITH FIRM INSTITUTIONAL AND RETAIL CUSTOMERS AND CHARGED MUCH GREATER COMMISSIONS FOR TRADES ORDERED BY THE INSTITUTIONAL CUSTOMERS THAN THOSE PLACED BY HIS RETAIL ACCOUNTS, WHICH WERE CONTROLLED BY THE UNREGISTERED REPRESENTATIVE, EVEN THOUGH BOTH TYPES OF CUSTOMERS TRADED IN THE SAME SECURITIES AND THE INSTITUTIONAL CUSTOMERS TRADED IN MUCH GREATER PRINCIPAL AMOUNTS. THE FIRM'S SUPERVISORY SYSTEM AND WSPS DID NOT ESTABLISH REASONABLE STANDARDS OR CRITERIA FOR EVALUATING, IN CONDUCTING SUPERVISORY REVIEWS, THE FAIRNESS OF MARKUPS AND MARKDOWNS CHARGED IN PRINCIPAL TRANSACTIONS WITH CUSTOMERS. THE FIRM'S WSPS DID NOT ADDRESS OR PROVIDE GUIDANCE CONCERNING HOW THE VARIOUS FACTORS AND CIRCUMSTANCES SHOULD BE APPLIED OR WEIGHED IN DETERMINING AN APPROPRIATE MARKUP OR MARKDOWN ON A TRANSACTION WITH A CUSTOMER AS PRINCIPAL.
Resolution
Decision & Order of Offer of Settlement
Sanctions
Censure
Sanctions
Civil and Administrative Penalty(ies)/Fine(s)
Amount
$10,000.00
Regulator Statement
WITHOUT ADMITTING OR DENYING THE ALLEGATIONS, MAHLE CONSENTED TO THE DESCRIBED SANCTIONS AND TO THE ENTRY OF FINDINGS; THEREFORE SHE IS CENSURED AND FINED $10,000 JOINTLY AND SEVERALLY. FINE PAID IN FULL ON 12/21/12.
Broker Comment
MS. MAHLE DISPUTED THE STAFF'S ALLEGATIONS REGARDING ITS SUPERVISORY SYSTEM, WRITTEN PROCEDURES AND THE SUPERVISION OF TWO FORMER REPRESENTATIVES, WHO HAVE BEEN BARRED BY FINRA FOR THEIR ACTIVITIES. MS. MAHLE BELIEVED THAT THE SUPERVISORY SYSTEM AND HER SUPERVISION OF THESE REPRESENTATIVES WAS REASONABLE AND IN ACCORDANCE WITH FINRA RULES AND REGULATIONS. NEVERTHELESS AND IN ORDER TO AVOID THE UNCERTAINTY AND DISRUCPTION OF FURTHER LITIGATION , MS. MAHLE WITHOUT ADMITTING OR DENYING THE ALLEGATIONS BY STAFF, SUBMITTED AN OFFER OF SETTLEMENT CONTAINING WHAT SHE VIEWED AS NOMINAL DISCIPLINE GIVEN STAFF'S INITIAL POSITIONS AS SHE BELIEVED THAT SUCH A SETTLEMENT WOULD NOT UNDULY AFFECT HER FURTURE PROFESSIONAL ENDEAVORS. STAFF ACCEPTED MS. MAHLE'S OFFER OF SETTELEMNT AND ISSUED AN ORDER ACCEPTING THE OFFER OF SETTLEMENT. THE SPECIFIC LANGUAGE OF THE OFFER OF SETTLEMENT IS PRESECRIBED BY FINRA'S PROCEDURES CONCERNING SUCH OFFERS AND TRACKS THE LANGUAGE OF THE ALLEGATIONS IN STAFF'S COMPLAINT.