UPDATE: SEC Says No Mulligans For FINRA Settlements
November 29, 2017
- Dakota Securities International, Inc. and Bruce Martin Zipper submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Dakota Securities International, Inc. and Bruce Martin Zipper, Respondents (AWC 2013035303301, April 22, 2016) (the "Dakota/Zipper AWC"); and
- Bruce Martin Zipper submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Bruce Martin Zipper, Respondent (AWC 2015046512101, April 22, 2016) (the "Zipper AWC").
Zipper entered the industry in 1981, and in 2004 was registered with FINRA member firm Dakota Securities International, Inc.
Dakota/Zipper AWC
According to the Dakota/Zipper AWC, under the heading of "RELEVANT DISCIPLINARY HISTORY" is the following disclosure:
In March 2010, FINRA issued an AWC (2008011681701) wherein DSI was censured and fined $5,000 for failing to retain outside emails exchanged between a DSI registered representative and a DSI customer that related to DSI's business and for inadequately enforcing its written supervisory procedures for the retention and review of emails, from July 26,2006 through July 31,2007, in violation of Section 17 of the Securities Exchange Act of 1934. Exchange Act Rule 17a-4, and NASD Rules 3110, 3010 and 2110.
On or about January 27, 1989, FINRA accepted an Offer of Settlement wherein Zipper was censured and fined $1,000, jointly and severally with Vanguard Securities. That firm, acting through Zipper, effected transactions in non-exempt securities while failing to maintain sufficient net capital to conduct a securities business.
On or about October 31. 1994. FINRA imposed a censure, $5,000 fine and suspension from association with any FINRA member in any capacity for five business days, for Zipper's failure to honor an arbitration award. On or about April 17, 1995, the U.S. Securities and Exchange Commission sustained the sanctions.
On or about November 17. 1995. the Florida Department of Banking and Finance entered into a Stipulation and Consent Agreement. Zipper agreed to cease and desist from any and all future violations of Chapter 517, Florida statutes, and the rules thereunder, and pay a $ 1,000 fine. Zipper violated the terms of his registration agreement, failed to timely notify the Department of a FINRA action. and failed to satisfy margin deficiencies in a manner prescribed by the Federal Reserve.
On or about November 24. 2009, the Florida Office of Financial Regulation entered into a Stipulation and Consent Agreement. DSI and Zipper were jointly and severally fined $5,000 and required to amend DSI's written supervisory procedures to be consistent with its practices and comply with the independent testing requirements pursuant to NASD Rule 3011. DSI and Zipper had failed to provide independent testing of DSI's anti-money laundering compliance program in 2006 when Zipper had tested the program and failed to enforce DSI's written supervisory procedures.
As synopsized in "Disciplinary and Other FINRA Actions" (FINRA, June 2016) under the headings:
"Firms Fined, Individuals Sanctioned":
Dakota Securities International, Inc. (CRD #132700, Miami, Florida) and Bruce Martin Zipper (CRD #1019731, Miami, Florida) submitted a Letter of Acceptance, Waiver and Consent (AWC) in which the firm was censured and fined $10,000. A lower fine was imposed after considering, among other things, the firm's revenue and financial resources. Zipper was fined $10,000 and suspended from association with any FINRA member in any principal capacity for one month. Without admitting or denying the findings, the firm and Zipper consented to the sanctions and to the entry of findings that the firm failed to preserve and maintain all business-related electronic communications. The findings stated that a firm registered principal used text messages in connection with the firm's securities-related business. The firm failed to capture the text messages, and failed to retain and preserve the text messages for the required period and in a non-rewritable, non-erasable format. Moreover, the firm and Zipper knew that the principal was using text messages to conduct firm business. Zipper, in his capacity as the firm's chief compliance officer (CCO), was the person responsible for ensuring that the firm preserved the registered principal's text messages. The findings also stated that the firm and Zipper failed to establish, maintain and enforce an adequate supervisory system to ensure that business-related text messages were subject to retention and supervision. The firm's written supervisory procedures (WSPs) were also inadequate in that they failed to require capturing, retention and preservation of all securities business-related electronic communications.
The suspension is in effect from May 31, 2016, through June 30, 2016. (FINRA Case #2013035303301)
On or about January 27, 1989, FINRA accepted an Offer of Settlement wherein Zipper was censured and fined $1,000,jointly and severally with Vanguard Securities. That firm, acting through Zipper, effected transactions in non-exempt securities while failing to maintain sufficient net capital to conduct a securities business.
On or about October 31, 1994, FINRA imposed a censure, $5,000 fine and suspension from association with any FINRA member in any capacity for five business days, for Zipper's failure to honor an arbitration award. On or about April 17, 1995, the U.S. Securities and Exchange Commission sustained the sanctions.
On or about November 17, 1995, the Florida Department of Banking and Finance entered into a Stipulation and Consent Agreement. Zipper agreed to cease and desist from any and all future violations of Chapter 517, Florida statutes, and the rules thereunder, and pay a $I,000 fine. Zipper violated the terms of his registration agreement, failed to timely notify the Department of a FINRA action, and failed to satisfy margin deficiencies in a manner prescribed by the Federal Reserve.
On or about November 24, 2009, the Florida Office of Financial Regulation entered into a Stipulation and Consent Agreement. DSI and Zipper were jointly and severally fined $5,000 and required to amend DSI's written supervisory procedures to be consistent with its practices and comply with the independent testing requirements pursuant to NASD Rule 3011. DSI and Zipper had failed to provide independent testing of DSI's anti-money laundering compliance program in 2006 when Zipper had tested the program and failed to enforce DSI's written supervisory procedures.
As synopsized in "Disciplinary and Other FINRA Actions" (FINRA, June 2016) under the headings:
"Individuals Barred or Suspended":
Bruce Martin Zipper (CRD #1019731, Miami, Florida) submitted an AWC in which he was fined $5,000 and suspended from association with any FINRA member in any capacity for three months. In light of Zipper's financial status, a fine of $5,000 has been imposed. Without admitting or denying the findings, Zipper consented to the sanctions and to the entry of findings that he willfully failed to timely amend his Form U4 to disclose unsatisfied judgments against him. The suspension is in effect from May 31, 2016, through August 30, 2016. (FINRA Case #2015046512101)
The Zipper AWC includes this paragraph:
I understand that this settlement includes a finding that I willfully omitted to state a material fact on a Form U4, and that under Section 3(a)(39)(F) of the Securities Exchange Act of 1934 and Article III, Section 4 of FINRA's By-Laws, this omission makes me subject to a statutory disqualification with respect to association with a member.
The Dakota/Zipper AWC and the Zipper AWC do not indicate that Dakota and/or Zipper were represented by legal counsel during the investigative or settlement phases of the two matters and no attorney's signature is indicated acknowledging the AWCs on Dakota's or Zipper's behalf.
A Misunderstanding
After Zipper entered into the two AWCs, he attempted to withdraw the Zipper AWC. Two things appear to have prompted that request. One, Zipper apparently did not comprehend that the finding of a willful failure to timely disclose the cited judgments subjected him to a statutory disqualification; and, two, that notwithstanding his settlement(s) with FINRA, the self-regulator was continuing to investigate Dakota. After FINRA denied Zipper's request to rip up his AWC, he appealed to the Securities and Exchange Commission ("SEC"), which he handled on a pro se basis.
SEC Opinion
As set forth in the "Background" section In the Matter of the Application of Bruce Zipper for Review of Action Taken by FINRA, (Opinion, SEC, '34 Act Rel. No. 81788; Admin. Proc. File No. 3-17963 / September 29, 2017) [Ed: footnotes omitted]:
I. Background
A. Zipper entered into the AWC following FINRA's examination of Dakota in 2015.
FINRA's Department of Member Regulation ("Member Regulation") conducted an examination of Dakota in 2015. On August 10, 2015, Member Regulation sent Zipper an Examination Disposition Letter (the "EDL") about the results of its examination. As relevant here, Member Regulation found that Dakota had failed to ensure that Zipper and another associated person had updated their Uniform Applications for Securities Industry Registration and Transfer ("Forms U4"). Member Regulation said it would caution Dakota for that misconduct rather than refer it to FINRA's Department of Enforcement ("Enforcement"), but noted that the caution "does not address, limit, or in any other way impact" other investigations. Zipper later denied receiving the EDL at the time, and said he was unaware that Member Regulation thought a caution was the appropriate response to Dakota's misconduct.
Following the EDL, Enforcement twice requested under FINRA Rule 8210 that Zipper appear for testimony under oath and provide information and documents with respect to Zipper's failure to update his Form U4 to include three judgments or liens against him. Enforcement subsequently presented Zipper with a draft AWC in which Zipper would agree that he "willfully omitted to state a material fact on a Form U4" and that "this omission makes me subject to a statutory disqualification with respect to association with a member." Zipper would also "specifically and voluntarily" waive the right to appeal the AWC to the Commission or to a U.S. Court of Appeals. And he would consent to a three-month suspension from association in all capacities and a $5,000 fine. Zipper accepted the AWC on April 1, 2016, and FINRA's National Adjudicatory Council Review Subcommittee accepted the AWC on April 22, 2016.
Although Zipper knew or should have known from reviewing the AWC before signing it that his suspension subjected him to a statutory disqualification, he told FINRA afterwards that he had not realized that was so, or that Dakota would have to submit a membership continuance application detailing the terms of his proposed continued association with Dakota. On May 5, 2016, Zipper exchanged emails with Kevin Rosen, the FINRA counsel with whom he had negotiated the AWC. Zipper said that he would not have agreed to the AWC had he known he would be subject to a statutory disqualification. Rosen directed Zipper's attention to the AWC's language pertaining to the statutory disqualification, and reminded him that they discussed it during settlement negotiations. Zipper then denied that he had understood that he would have to file a membership continuance application to remain associated with Dakota after his suspension, and he sought to "withdraw[]" from the AWC. Rosen again explained that Zipper had been made aware of the statutory disqualification and membership continuance application issues. Rosen also informed him that "[t]he AWC is final and not subject to your withdrawal." Zipper's 90-day suspension ran from May 31, 2016, to August 31, 2016.
by agreeing to the AWC he "made a deal with FINRA enforcement . . . to settle the issues confronting Bruce Zipper and Dakota Securities relating to [the 2015 FINRA] exam."
Zipper argues that he entered into his AWC with a misunderstanding of what issues his AWC with a misunderstanding of what issues his AWC was resolving, and without knowing that Member as less serious than his own. He also asserts that FINRA is engaged in a cover up and is "hell bent on destroying both [him] and [his] firm." Zipper asks that we "review" his "case," compel FINRA's Boca Raton office to provide him with internal emails and other communications, and initiate an investigation into FINRA. FINRA moves to dismiss.
The SEC dismissed Zipper's application. In offering its rationale, the SEC found, in pertinent part, that [Ed: Footnotes omitted]:
Zipper's AWC is valid and enforceable, and his appellate waiver is binding. The record does not support Zipper's contention that he executed the AWC based on a misunderstanding. The AWC specified that he had "read and underst[oo]d" its provisions, could "ask questions about it," had "agreed to its provisions voluntarily," and had only been induced to sign by "the terms set forth herein and the prospect of avoiding the issuance of a Complaint." The AWC also made clear that he would be subject to a statutory disqualification and that he would waive his appellate rights. And it focused on his own misconduct in not updating his Form U4-not Dakota's misconduct related to Forms U4, or either of their misconduct related to other exceptions FINRA found in its Dakota examination. Nor did it purport to preclude FINRA from examining Zipper or Dakota with respect to those other exceptions. Despite Zipper's assertion that he did not receive the EDL before entering into the AWC, he offers no evidence that FINRA misled him about how serious it considered his misconduct and Dakota's misconduct respectively. For these reasons, we find that Zipper's AWC is binding and that he waived his right to appeal the AWC to the Commission.
On July 29, 2016, Dakota Securities International, Inc. (the "Firm"), submitted a Membership Continuance Application ("MC-400" or "the Application") to FINRA's Department of Registration and Disclosure. The Application seeks to permit Bruce Zipper, a person subject to a statutory disqualification, to continue to associate with the Firm as a general securities representative. On July 12, 2017, a subcommittee ("Hearing Panel") of FINRA's Statutory Disqualification Committee held a hearing on the matter. Zipper appeared at the hearing, accompanied by the Firm's acting chief executive officer at the time, Robert Lefkowitz ("Lefkowitz"). Ann-Marie Mason, Esq., Katayna Moore, Esq., and Sora Lee, Esq. appeared on behalf of FINRA's Department of Member Regulation ("Member Regulation").For the reasons explained below, we deny the Application. Zipper engaged in serious misconduct since his disqualifying event by associating with the Firm while suspended, and Lefkowitz -- Zipper's supervisor and the Firm's chief compliance officer at the tim ---- permitted Zipper to do so. Moreover, the Firm has not demonstrated that Zipper's current proposed supervisors have the necessary supervisory experience and independence to supervise Zipper, the Firm's owner. Finally, the Firm's proposed heightened supervisory plan, which the Firm revised both at and after the hearing, lacks sufficient detail and the necessary stringency required of a heightened supervisory plan for a statutorily disqualified individual. We therefore conclude that the Firm has not demonstrated that it is in the public interest for Zipper to continue to associate with the Firm, and deny the Application.
Bruce M. Zipper has sought a stay pending his appeal of FINRA action denying him permission to continue to associate with a FINRA member firm notwithstanding his statutory disqualification. Zipper became statutorily disqualified from associating with a FINRA member firm after he entered into a Letter of Acceptance, Waiver, and Consent ("AWC") with FINRA finding that he willfully failed to disclose certain material information on his Uniform Application for Securities Industry Registration or Transfer ("Form U4"). Dakota Securities International, Inc., a FINRA member firm of which Zipper was chief executive officer and chief compliance officer, submitted a membership continuance application asking FINRA to permit Zipper to continue associating with it despite his statutory disqualification. FINRA denied the application on October 2, 2017. Zipper appealed that decision to the Commission and, as relevant here, moved to stay the effectiveness of FINRA's denial pending the outcome of his appeal. Because Zipper has not met his burden of establishing that a stay is warranted, his motion is denied.
Likely To Succeed Prong(i) there is a strong likelihood that the moving party will succeed on the merits of its appeal; (ii) the moving party will suffer irreparable harm without a stay; (iii) any person will suffer substantial harm as a result of a stay; and (iv) a stay is likely to serve the public interest.
Zipper's stay motion fails to address the Exchange Act Section 19(f) standard. Despite making multiple filings in support of his stay motion, Zipper identifies no reason why he is likely to succeed in challenging the NAC's determinations that he violated the terms of his suspension, that his proposed supervisors lacked the necessary experience and independence, and that the proposed heightened supervisory plan was inadequate. Accordingly, we find for purposes of this motion that Zipper has not even raised a substantial question on the merits, let alone shown a strong likelihood of success.
Although Zipper's claims that his firm will be forced to cease operations absent a stay are somewhat vague, they do not appear entirely speculative. In its opposition, FINRA does not dispute that it has given Zipper and Dakota "a deadline to submit a plan to stay in business in Zipper's absence." Nor does it disclaim an intention, as Zipper asserts, to "shut down" Dakota or put it "out of business" if it fails to do so. Ultimately, we need not decide whether Zipper has satisfied his burden of establishing an irreparable injury because any harm to Zipper is outweighed by the other factors.
Page 8 of the SEC Order[A]ccordingly, we find that any relief staying FINRA's denial of the MC-400 application while the Commission considers Zipper's appeal could endanger investors. It would allow Zipper to continue to associate with Dakota "without the protections provided by FINRA's membership continuance application process, which considers the public interest when weighing whether to allow a proposed association that is otherwise prohibited." The public interest and the risk of harm to others therefore do not support Zipper's motion.