Articles Posted in Southwest Securities

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 Continue reading

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

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.

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.

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