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From Securities Regulation Daily, April 15, 2013

FINRA Alleges Brokerage Reaped $1 Million From Trading Ahead; Bullied Representatives

By Anne Sherry, J.D.

FINRA filed a complaint today alleging that John Thomas Financial, Inc. (JTF) made over $1 million by selling shares from its own account during a temporary price spike, while its personnel lied to customers about why the firm could not execute their sale orders. According to the complaint, the CEO and other respondents "threatened, harassed, coerced and intimidated" registered representatives who questioned the CEO’s instructions, including threatening to have brokers "run over" (Department of Enforcement v. John Thomas Financial, Inc., April 15, 2013).

Trading ahead. FINRA alleges that JTF reaped over $1 million on February 23, 2012, from sales of America West Resources, Inc. from its proprietary trading account when the stock price temporarily spiked by 600 percent. Although it sold its own shares, the complaint alleges that JTF entered only one of at least 15 customer sale orders it received that day and executed the others on later dates for much lower prices, or not at all. America West is now in bankruptcy, and its shares are worth next to nothing.

Cover-up. JTF variously told customers that the shares were statutorily restricted, that there was insufficient volume to make their trades, and that the firm’s trading systems erroneously indicated that the shares were restricted. Certain respondents "lost" at least 14 order tickets and replaced six of these with falsified tickets indicating the orders were received on February 24. The complaint also alleges that JTF, through its CEO, Chief Compliance Officer, and Regional Managing Director, coerced its brokers to keep quiet by threatening to have them "run over" and to ruin their careers by improperly marking their industry records.

Relief sought. FINRA alleges that the respondents violated the securities laws and FINRA and NASD rules by trading ahead, failing to follow customer instructions, lying to customers and registered representatives, falsifying order tickets, failing to supervise, making false and misleading statements to FINRA, failing to keep accurate books and records, and intimidating registered representatives. The complaint requests monetary sanctions, including disgorgement and/or restitution, as well as specific findings that certain respondents willfully violated the Exchange Act.

The case is No. 20120334673-01.

Companies: America West Resources, Inc.; John Thomas Financial, Inc.

MainStory: TopStory BrokerDealers FraudManipulation

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