The intentional or, at a minimum, reckless quality of Geary's misconduct persuades the Hearing Panel that stringent sanctions are warranted to protect the investing public, both to impress upon Geary himself the importance of compliance and also to deter others from engaging in similar misconduct. The net capital rule is fundamental to protecting the investing public from financial recklessness by broker-dealers who receive or hold customer funds and securities.

The Hearing Panel does not find Geary's testimony regarding his current financial difficulties mitigating. He testified that he is working, but he still owes money on the loan that he obtained to purchase the Firm. He also testified regarding his family obligations and asserted that he would not have sufficient financial resources to support his family and meet his obligations if he were suspended, and that he did not have the financial resources to pay a fine.None of this excuses his misconduct. Nor does it constitute sufficient evidence of a bona fide inability to pay. If he is financially unable to pay the monetary sanctions imposed, which are discussed below, then he can make the appropriate application for relief. To the extent that the suspensions imposed result in a financial hardship because he cannot work during that period, that is always the result of a suspension. It is not a basis for a more lenient sanction.

We agree with Geary that his acts were not motivated by fraud. We find, however, that Geary's reckless disregard of the consequences of his proprietary trading in May 2009 and his intentional disregard in February 2010 of the net capital rules and his own Firm's written supervisory procedures, obligating the Firm to cease operations while net capital deficient, warrant significant sanctions. See William K. Cantrell, 52 S.E.C. 1322, 1327 (1997) (finding sanctions neither excessive nor oppressive when respondent permitted the firm to operate with substantial net capital deficiencies thereby depriving its customers protections afforded to them by the net capital requirements and exposing them to undue risk).

In regard to the second principal consideration for determining sanctions for net capital violations, we find there is no evidence in the record that Geary tried to conceal GSI's net capital deficiencies. When FINRA inquired at an on-the-record interview about the violation in May 2009, Geary was forthcoming and testified that Frager backdated the trade date "to make the capital violation go away." With respect to the February 2010 net capital violation, Geary argues that he "acknowledged the alleged misconduct to FINRA." Whereas GSI was obligated under Exchange Act Rule 17a-11(b) to file the deficiency notices, we note other instances in which GSI alerted FINRA to the net capital issues at the Firm. For instance, prior to the February 2010 net capital violation, Frager emailed GSI's FINRA regulatory coordinator for GSI on January 22, 2010, informing FINRA that GSI planned to close a CEMP transaction "which in and of itself will restore significant capital to the broker-dealer entity," and, if for some reason the closing is delayed, that GSI's parent company "will arrange to infuse additional capital into the [Firm] next week." And on February 10, 2010, in addition to Frager filing the first net capital deficiency notice on behalf of the Firm, AR left a message for FINRA staff regarding net capital issues at the Firm. Although the Firm did not file its first net capital deficiency notice until February 10- six days after Geary learned about the net capital deficiency-we attribute this delay to sloppiness as opposed to an effort to conceal.

As president and CEO of GSI, Geary ultimately was responsible for ensuring that the Firm complied with all regulatory requirements. He also controlled those responsible for the Firm's financial recordkeeping and net capital reporting. Geary not only caused the May 2009 net capital violation through his proprietary trading, but he had actual knowledge of the Firm's net capital insufficiency as of February 4, 2010, but nonetheless permitted the Firm to effect securities transactions. Thus, any claimed lack of awareness or involvement with respect to requirements surrounding GSI's financial reporting does not negate Geary's responsibilities as president of the Firm. Cf. Block, 2001 NASD Discip. LEXIS 35, at *16 ("[E]ven if there has been an effective delegation of financial compliance responsibilities, a controlling executive who is directly involved in accounting and net capital violations incurs responsibility for those violations.").

[G]eary testified that he currently does not have financial resources to satisfy his unpaid financial obligations or meet all his obligations if he is suspended, but he submitted no additional evidence or any documentation showing financial hardship. This evidence is insufficient under our jurisprudence. See Dep't of Enforcement v. Levitov, Complaint No. CAF970011, 2000 NASD Discip. LEXIS 12, at *33-34 (NASD NAC June 28, 2000) ("We require all respondents who wish to make a claim of inability to pay to verify the accuracy of their financial condition through the submission of signed and notarized documents evidencing financial hardship."). Geary also did not demonstrate that he was unable to borrow or otherwise raise additional funds. Cf. Dep't of Enforcement v. Tomlinson, Complaint No. 2009017527501, 2014 FINRA Discip. LEXIS 4, at *30-31 (FINRA NAC March 5, 2014) (declining to impose a fine and costs where respondent demonstrated insolvency). Based on the record, we conclude that Geary has not demonstrated an inability to pay.

[W]ith respect to both the May 2009 and February 2010 violations, Geary failed to ensure that the firm was operating with sufficient net capital despite being aware of the conditions that led to the violations.

Geary attempts to distance himself from the firm's net capital violations by arguing that he delegated and relied on qualified industry professionals who he claims were ultimately responsible for the violations. According to Geary, he did not have any "personal involvement" with GSI's violations and "Frager -- without consulting Geary -- made all of the decisions that are the bases for the violations." But it is undisputed that Geary, not Frager, ordered the CMO purchase that caused the May 2009 deficiencies and that he did so despite Frager's warnings. Moreover, it was his, not Frager's, decision to continue the firm's violative operations notwithstanding his awareness of deficiencies that were continuing in February 2010. He again disregarded reminders of his obligation to suspend operations in making that decision.

Geary also contends that he "lacked any knowledge, awareness or suspicion" of the May 2009 net capital violations and did not intend to violate the rule. As an initial matter, intent is not necessary to establish a responsible person's liability for a net capital violation. 

Under Exchange Act Section 19(e)(2), we will sustain a FINRA sanction unless we find that it is "excessive or oppressive" or imposes an unnecessary or inappropriate burden on competition. As part of this review, we consider any aggravating or mitigating factors; we also consider whether the sanctions are remedial in nature and not punitive. Although the Commission is not bound by the Sanction Guidelines, we use them as a benchmark for our review. Geary argues that the sanctions FINRA imposed were inconsistent with FINRA's Sanction Guidelines and failed to appropriately consider mitigating factors. We disagree and find the sanctions satisfy the statutory requirements.

Geary argues the $20,000 fine is punitive in light of his other financial obligations. But while a bona fide inability to pay is a proper consideration, "[i]t is well settled that a respondent bears the burden of demonstrating an inability to pay, and that [FINRA] is entitled to make a searching inquiry into any such claim," including by requiring appropriate documentation. We agree with FINRA that Geary did not establish his inability to pay a $20,000 fine, particularly when he failed to document his income, assets or expenses. Geary's additional claim that the suspension will hamper his ability to pay the fine is unavailing. Such a collateral effect of his misconduct does not justify any reduction of the fine.

[H]e points to his own testimony about his family's financial circumstances. But the SEC held that FINRA is entitled to require documentation of a bona fide inability to pay, and Mr. Geary failed to document his income, assets, or expenses. The SEC's conclusion is consistent with the Sanctions Guidelines. See Add. at 21 ("The burden is on the respondent to raise the issue of inability to pay and to provide evidence thereof. . . . Adjudicators should require respondents who raise the issue . . . to document their financial status through 16 the use of standard documents that FINRA staff can provide[]."); see also ACAP Fin., 783 F.3d at 768 (noting the SEC's rejection of a claim of inability to pay due to a lack of information about financial circumstances).

Mr. Geary contends that the SEC failed to articulate a remedial purpose for the sanctions imposed, which he claims are impermissibly punitive. But the SEC explained that the sanctions were necessary to protect investors. In holding that significant sanctions were warranted, the SEC noted Mr. Geary's "troubling attitude" regarding regulatory compliance, his display of "a disturbing lack of understanding and ignorance of FINRA rules," his repeated failure to heed warnings regarding protecting GSI's capital, and "concerns about his ability to comply with regulatory requirements generally." Admin. R., Vol. 1 at 29, 32, 33 (internal quotation marks omitted). Because Mr. Geary continues to work in the securities industry, the SEC decided that an all-capacities suspension was appropriate to impress on him the need to comply with regulatory requirements, rather than addressing violations after they occur. He has not demonstrated that the sanctions imposed lack a remedial purpose.

NASD SANCTIONS AGAINST JUAN C. SCHIDLOWSKI REDUCED

The Commission has reduced sanctions imposed by the NASD on Juan Carlos Schidlowski of Sedalia, Colorado, former president of OTC Net, Inc., a Denver securities firm. The sanctions imposed on Schidlowski were reduced to a censure and a ten-day suspension as principal.

The Commission found, as had the NASD, that, from November 1 to December 15, 1980, Schidlowski was responsible for deficient supervision in connection with his firm's failure to register its compliance officer with the NASD as a principal. However, the Commission set aside the NASD's findings that Schidlowski was also responsible for deficient supervision in connection with certain unlawful sales of unregistered securities and related recordkeeping violations. In setting aside those findings, the Commission stated: "There is no evidence here of any dereliction of duty or knowledge of the violations at issue. A firm's president is not automatically at fault when other individuals in the firm engage in misconduct of which he has no reason to be aware." In reducing the sanctions imposed by the NASD, the Commission noted that it had set aside the major portion of the NASD's findings of violation, including the most serious misconduct. (ReI. 34-23347 - June 19)