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Florida Broker-Dealer Censured, Fined $100,000 for Penny Stock-Related Misconduct

On July 11th, 2017, FINRA’s Department of Enforcement announced that it reached a settlement with Spartan Securities Group, LTD (CRD No. 104478), a registered brokerage firm, based in Clearwater, Florida. Without admitting to or denying any misconduct, Spartan Securities accepted penalties that include a:

  • Public censure; and
  • $100,000 fine.

These penalties were brought against the firm because it failed to put in the proper compliance protocols to identify, detect and report suspicious transactions. The transactions in question are often associated with penny stock fraud. Full details in this case can be found by referencing Disciplinary Proceeding No. 2013036389101.

The Allegations Against Spartan Securities Group  

No Adequate Supervision System Was in Place  

According to FINRA’s investigators, Spartan Securities failed to establish and implement an adequate anti-money laundering program related to its program of accepting penny stocks for immediate liquidation. Indeed, the firm failed to put in any sort of system to review account records, financial statements, business records, securities transaction or withdrawals. Without these systems in place, the firm could not be sure that it was not facilitating securities fraud. More specifically, the Clearwater, FL-based brokerage firm violated FINRA Rule 2010 and FINRA Rule 3310(a).

Spartan Securities Failed to Identify and Report Penny Stock-Related Misconduct  

FINRA investigators determined that the Florida broker-dealer missed at least eight different instances of suspicious penny stock-related transactions. For example, in the summer of 2010, an unidentified customer opened an investment account at the firm. In November of that year, this customer deposited 83 million shares of an unregistered penny stock in the brokerage account.

During this period, that penny stock company underwent a reverse stock split. Spartan Securities failed to report this important fact to industry regulators. While certainly not unlawful, reverse stock splits are sometimes used by penny stock fraudsters to dilute the value of the shares, essentially extracting away money from investors, giving them little to no value in return for their investment.

Many Red Flags Were Missed

As it turns out, the company in question in this aforementioned example had previously been accused of misleading financial accounting practices, and had been previously censured by the Securities and Exchange Commission (SEC). Spartan Securities should have flagged this company’s transactions so that regulators could review them. Yet, because the broker-dealer failed to put the proper protocols in place, the money of innocent investors was put at considerable risk as a result.

Were You a Victim of Securities Fraud? 

Our investment fraud team is standing by, ready to help. At Carlson & Associates, P.A., our practice is devoted to holding bad acting brokers and brokerage firms liable for their negligence and misconduct. If you sustained serious investment losses, please do not hesitate to reach out to our Miami office today at 1-(305)-372-9700 to schedule a fully confidential review of your claim.

Resource:

disciplinaryactions.finra.org/Search/ViewDocument/69263

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