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From Securities Regulation Daily, January 9, 2015

FINRA expels broker-dealer, bars CEO for trading ahead

By Lene Powell, J.D.

FINRA expelled New York broker-dealer John Thomas Financial, Inc. (JTF) and barred its CEO from the securities industry for trading ahead of 14 customers in the sale of a spiking stock, benefitting the firm’s proprietary positions at the expense of the customers. The firm did not intentionally hold the customer orders, as JTF brokers tried unsuccessfully to enter the orders. But because it did  not cancel and rebill the trades, the firm’s action still violated the just and equitable principles of trade rule, which required the firm to execute the orders at the same or better price than it obtained for itself (Department of Enforcement v. John Thomas Financial, Inc., January 9, 2015).

Trading ahead.  In February 2012, JTF held over one million shares of the thinly traded stock America West Resources, Inc. (AWSR), and JTF held about 20 million shares. In the afternoon of February 23, the AWSR stock price suddenly spiked 600 percent. One broker quickly entered two customer sell orders to take advantage of the surge. JTF’s owner and CEO, Anastasio P. “Tommy” Belesis told office manager Ann Misiti to sell the firm’s proprietary shares. The customer sell orders were rejected by JTF’s clearing firm, but the proprietary trades went through, netting JTF profits of over $1 million, the biggest profit the proprietary account had ever made.

FINRA charged JTF, Belesis, and Misiti with conspiring to prevent customers from selling their AWSR shares while selling the firm’s own shares, maximizing the firm’s profit at the expense of its customers. Other charges included providing customers with false and misleading information, falsifying order tickets, failing to supervise, engaging in securities fraud, and failing to observe high standards of commercial honor and just and equitable principles of trade. Two causes of action included John Ward, a trader who attempted to enter the customer orders.

The FINRA hearing panel found that Enforcement proved that JTF and Belesis violated FINRA Rules 5320 and 2010 by trading ahead; violated Rules 4511(a) and 2010 and SEC Rule 17a-3 and 17a-4 by failing to preserve order tickets; and Rules 5240 and 2010 by threatening, coercing, and attempting to improperly influence persons associated with a FINRA member firm. Belesis also violated Rule 8210 and 2010 by providing false and misleading information to FINRA in sworn investigative testimony. Charges were dismissed against Misiti and Ward.

Sanctions. In addition to expelling JTF from FINRA membership and barring Belesis from the securities industry, the panel ordered JTF and Belesis jointly and severally to disgorge over $1 million to customers. In addition, JTF and Belesis were jointly and severally fined $100,000. FINRA also suspended JTF’s Chief Compliance Officer Joseph Castellano for one year and fined him $50,000 for harassing and intimidating registered representatives.

The case is No. 20120334673-01.

MainStory: TopStory Enforcement FraudManipulation BrokerDealers FINRANews

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