March 17, 2011

Dallas-Based Southwest Securities Settles for $500,000 FINRA Charges It Improperly Used Paid Consultants

Southwest Securities Inc., a Dallas-based financial firm, has consented to a $500,000 fine imposed by Financial Industry Regulatory Authority. The SRO claims that the broker-dealer paid consultants to solicit municipal securities business—a violation Municipal Securities Rulemaking Board Rule G-38—and did not comply with a number of the board’s other requirements. FINRA says that the Texas broker-dealer’s alleged misconduct threatened the municipal securities market’s integrity.

Under Rule G-38, municipal securities dealers are not allowed to pay persons not affiliated with the company for the purposes of soliciting business for it. Southwest Securities, however, allegedly worked with these consultants to obtain 24 municipal securities underwritings and roles as financial adviser to Texas municipalities. The consultants were paid over $200,000 and promised a percent of earnings from any municipal securities business solicited. The broker-dealer also allegedly issued $26,000 in one-time payments to three individuals for their involvement in obtaining this type of business for the firm.

Other violations, allegedly included:
• Failing to properly submit MSRB forms.
• Inaccurate reporting to over 300 municipal securities transactions.
• Inadequate supervisory systems and procedure, which should have been revised to meet a MSRB Rule G-38 amendment that doesn’t allow unaffiliated individuals to receive payment soliciting municipal securities business.
• Engaging in prohibited municipal securities business—a violation of MSRB Rule G-37

By settling, the Southwest Securities is not denying or admitting the Texas securities charges.


Related Web Resources:
Southwest Securities to Pay $500K, Settling Charges Firm Improperly Used Paid Consultants, BNA Broker/Dealer Compliance Report, March 9, 2011

Dallas broker pays $500,000 to settle bond query, Dallas News, March 7, 2011

FFINRA Fines Southwest Securities $500,000 for Paying Former Texas Municipal Issuer Officials and Others to Solicit Municipal Securities Business on its Behalf, FINRA, March 7, 2011


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January 26, 2010

Former Southwest Securities Broker’s Lifetime Industry Bar for Texas Securities Fraud is Affirmed, Says Appeals Court

The U.S. Court of Appeals for the Fifth Circuit has affirmed the Securities and Exchange Commission’s lifetime bar against a former Southwest Securities Inc. stockbroker. Scott Gann, who allegedly committed Texas securities fraud, is no longer allowed to associate with dealers, investment advisers, and brokers.

The SEC imposed the permanent bar against Gann because of his alleged involvement in a mutual fund market timing scheme. The appeals court says that the SEC’s ruling is not an abuse of discretion and is supported by the record.

Gann and George Fasciano, also a former Southwest Securities broker, are accused of engaging in market timing trades for Haidar Capital Management and Capital Advisor. They allegedly got around the rules of some of the mutual funds that prohibit market timing by using multiple representative and account numbers. Despite receiving 69 block notices from 34 mutual funds, their strategy allowed them to continue executing market timing trades.

The SEC filed an enforcement action in federal district court accusing the two men of violating the 1934 Securities Exchange Act Section 10(b). Fasciano settled before the case went to trial.

The district court held that Gann was in violation of Section 10(b). An SEC administrative law judge then entered a permanent associational bar against the ex-Southwest Securities broker. The SEC affirmed the bar, as did the appeals court.

The appeals court also noted that as Gann is convinced he did not engage in any wrongdoing—even though the SEC and two courts found that Gann acted wrongfully—there is no guarantee he won't commit future violations.

Related Web Resources:
Gann v. SEC, SEC.gov (PDF)

1934 Securities Exchange Act, Cornell University Law School

Continue reading "Former Southwest Securities Broker’s Lifetime Industry Bar for Texas Securities Fraud is Affirmed, Says Appeals Court" »

April 30, 2008

Ex-Southwest Brokers Found Liable for Concealing Market Timing Trades

The U.S. District Court for the Northern District of Texas says that two ex-Southwest Securities Inc. brokers acted fraudulently when they purposely tried to circumvent policies designed to prevent market timing trades. The Securities and Exchange Commission had brought the case against the two men.

The brokers were aleged to have violated Act’s Section 10(b) and Rule 10b-5.

The court also found one culpable under the act’s antifraud provisions and ordered him to disgorge $56,640.67 in commissions. The court also ordered a $50,000 civil penalty and granted the SEC’s request for injunctive relief.

The SEC’s complaint alleges that one of the brokers opened Southwest Securities accounts to engage in market trading for Haidar Capital Management and Capital Advisor ("HCM"). He then allegedly asked the other broker, who did not have a license to trade mutual fund shares, to be his partner.

The two men allegedly received a “block notice” after attempting to place the first market timing trade for HCM. They received more block notices after making more trades.

They allegedly responded by adopting a new branch office number and using several broker numbers. Witnesses say that there is no legitimate reason to use multiple broker numbers and they often are an attempt to conceal an investor’s identity so that he or she can keep trading.

According to the court, the non-licensed broker may have contacted the mutual funds prior to making any trades, but “he acted with scienter, that is, he had the intent to deceive or defraud the mutual funds in which he traded on behalf of HCM."

If you are a victim of investment fraud or broker misconduct, contact Shepherd Smith and Edwards today for your free consultation with an experienced stockbroker fraud lawyer.

Related Web Resource:

Read the SEC Complaint

July 31, 2007

Merrill Manager at Center of Harassment Claim Now at Southwest Securities - But Claims and Counterclaims Continue

Former Merrill Lynch employee Hydie Sumner sued that firm saying she was sexually harassed. She was represented by lawyer Linda Freidman. In 2004, a panel of three NASD arbitrators decided Hydie was right and awarded her $2.2 million. They also forced Merrill to reinstate her.

Meanwhile, an email was allegedly sent to Merill Lynch by Ms. Sumner’s attorney Linda Freidman, reportedly at Sumner’s direction, questioning Merrill’s ethics for employing “a man like [Blas] Catalani,” Sumner’s Merrill Lynch manager. According to Catalini, this defamed him and caused him to be fired, his clients were then distributed to other brokers at Merrill and he found it “extremely difficult” to becoming re-employed in the securities industry.

Catalini therefore filed a lawsuit against Sumner and her lawyer, claiming defamation. Not to be outdone, Hydie Sumner then filed a counterclaim against Catalini claiming that he damaged her reputation by reporting that she was the reason he was terminated by Merrill Lynch.

Making things more complicated, Catalini also filed suit against Merrill Lynch claiming sexual discrimination, saying that firm terminated him to make room for Sumner. The claims against Merrill have now been moved to arbitration.

How much damage has Catilini actually suffered? Apparently, he is now managing a seven broker private client unit in San Antonio for Dallas-based Southwest Securities. Reportedly, a spokesman for Southwest, Jim Bowman, stated: “We think there’s a growing market in [San Antonio] and we’re trying to grow that office.” Southwest Securities did not comment on Catalani’s ongoing lawsuit(s).

Who is the victim of what, when, why and to whom? Hard to say. But if you are keeping score: Hydie and her lawyer are a couple million ahead, Catalani is apparently doing well in River City, Merrill has already earned a couple of billion this year. I just wonder when anyone has the time to take care of investors - you know - the clients.

Shepherd Smith and Edwards has represented thousands of investors nationwide in claims against securities brokers and their firms. If you, your company or pension fund, or someone you know has been harmed by fraud, negligence or other wrongdoing by those in the securities industry contact us today to arrange a free consultation with one of our attorneys.