An irreverent Wall Street Blog
The Boogie Woogie Crypto Man of Company C
August 28, 2020
In a recent FINRA regulatory settlement, we come across a rep who was sucked into the fascinating, fabulous, and perplexing world of cryptocurrency. As an assistant to the head of a so-called prospective crypto trading exchange, the rep showed impressive enthusiasm in taking on all sorts of tasks in furtherance of the business. On top of that, he invested his own money into the venture and purportedly secured funds from others. In some lines of work, you can get involved in outside business activities and securities transactions without giving your employer prior notice. Not so on Wall Street.
Case In Point
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Jose A. Yniguez, submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Jose A. Yniguez, Respondent (FINRA AWC 2018060543701 / August 25, 2020)
https://www.finra.org/sites/default/files/fda_documents/2018060543701
%20Jose%20A%20Yniguez%20CRD%204945380%20AWC%20sl.pdf
%20Jose%20A%20Yniguez%20CRD%204945380%20AWC%20sl.pdf
The AWC asserts that Yniguez entered the securities industry in 2005 with FINRA member firm Transamerica Financial Advisors, Inc. (f/k/a "World Group Securities, Inc.), and he was first registered in 2009. The AWC asserts that Van Allen "does not have any disciplinary history with the Securities and Exchange
Commission, any state securities regulators, FINRA, or any other self-regulatory
organization."
The Boogie Woogie Crypto Man of Company C
The AWC alleges that from March through November 2018, Yniquez was employed as an assistant to an individual referred to only as "AB." The AWC further characterizes AB as the "the founder and chairman of Company C, a prospective trading exchange for cryptocurrencies." In his role as AB's assistant, Yniquez activities included:
coordinating AB's meetings and appointments, reviewing correspondence, making banking deposits, attending and participating in trade shows, and testing the functionality of company's website. Yniguez had a company-issued email address, and received approximately $5,000 as compensation from AB for his services.
From March through November 2018, Yniquez allegedly
solicited and referred 11 individuals, including eight of his Firm customers, to invest in shares of Company C. Yniguez recommended that his Firm customers and the other individuals invest in Company C, endorsing the company and its management; and referred them to Company C to complete their investment. Yniguez also collected the investors' checks and delivered them to, or deposited them on behalf of, Company C.
The AWC alleges that the 11 individuals cited above invested $99,900 in Company C and that in September 2018, Yniquez personally invested $4,300. Yuniquez was purportedly paid about $1,600 in commissions on the $99,900 in investments obtained via his solicitation/referral.
OBA
Alas, Yniquez's employment as AB' assistant from March through November 2018 ran afoul of FINRA Conduct Rule 3270: Outside Business Activities of Registered Persons. FINRA Rule 3270 requires in part that:
No registered person may be an employee, independent contractor, sole proprietor, officer, director or partner of another person . . . unless he or she has provided prior written notice to the member, in such form as specified by the member.
The AWC alleges that Yniquez did not disclose to Transamerica Financial his outside business activities with AB and Company C, and did not disclose the compensation that he was paid. Accordingly, FINRA deemed that he had violated FINRA Rules 3270 and 2010. For more details on this recurring regulatory theme:
http://www.brokeandbroker.com/index.php?a=topic&topic=obahttp://brokeandbroker.com/PDF/Rule3270OBAAnalysis.pdf
PST
The Rulebook
FINRA Rule 3280: Private Securities Transactions of an Associated Person(a) ApplicabilityNo person associated with a member shall participate in any manner in a private securities transaction except in accordance with the requirements of this Rule.(b) Written NoticePrior to participating in any private securities transaction, an associated person shall provide written notice to the member with which he is associated describing in detail the proposed transaction and the person's proposed role therein and stating whether he has received or may receive selling compensation in connection with the transaction; provided however that, in the case of a series of related transactions in which no selling compensation has been or will be received, an associated person may provide a single written notice.(c) Transactions for Compensation(1) In the case of a transaction in which an associated person has received or may receive selling compensation, a member which has received notice pursuant to paragraph (b) shall advise the associated person in writing stating whether the member:(A) approves the person's participation in the proposed transaction; or(B) disapproves the person's participation in the proposed transaction.(2) If the member approves a person's participation in a transaction pursuant to paragraph (c)(1), the transaction shall be recorded on the books and records of the member and the member shall supervise the person's participation in the transaction as if the transaction were executed on behalf of the member.(3) If the member disapproves a person's participation pursuant to paragraph (c)(1), the person shall not participate in the transaction in any manner, directly or indirectly.(d) Transactions Not for CompensationIn the case of a transaction or a series of related transactions in which an associated person has not and will not receive any selling compensation, a member which has received notice pursuant to paragraph (b) shall provide the associated person prompt written acknowledgment of said notice and may, at its discretion, require the person to adhere to specified conditions in connection with his participation in the transaction.(e) DefinitionsFor purposes of this Rule, the following terms shall have the stated meanings:(1) "Private securities transaction" shall mean any securities transaction outside the regular course or scope of an associated person's employment with a member, including, though not limited to, new offerings of securities which are not registered with the Commission, provided however that transactions subject to the notification requirements of Rule 3210, transactions among immediate family members (as defined in FINRA Rule 5130), for which no associated person receives any selling compensation, and personal transactions in investment company and variable annuity securities, shall be excluded.(2) "Selling compensation" shall mean any compensation paid directly or indirectly from whatever source in connection with or as a result of the purchase or sale of a security, including, though not limited to, commissions; finder's fees; securities or rights to acquire securities; rights of participation in profits, tax benefits, or dissolution proceeds, as a general partner or otherwise; or expense reimbursements.
The AWC alleges that Yniquez did not disclose to Transamerica Financial his personal investment in Company C, his investment solicitations, or his receipt of sales-related compensation. Exacerbating his nondisclosures was Yniquez's alleged making of "false statements to the Firm during its internal
investigation regarding the compensation he received and the number of individuals he solicited."
Accordingly, FINRA deemed that he had violated FINRA Rules 3280 and 2010. For more details on this recurring regulatory theme:
Visit the BrokeAndBroker.com PST Cases Archive
http://www.brokeandbroker.com/index.php?a=topic&topic=pst
Dischargedhttp://brokeandbroker.com/PDF/Rule3280PSTAnalysis.pdf
Online FINRA BrokerCheck records as of August 27, 2020, disclose that Transamerica "Discharged" Yniquez on November 19, 2018, based upon allegations that:
The firm was advised by the U.S. Securities and Exchange Commission that the Representative may be involved in referring customers to an outside investment opportunity. Upon investigation by the firm, the Representative acknowledged that he had referred certain TFA customers, as well as non-customers, to an investment opportunity not approved by the firm. The Representative also acknowledged making a personal investment with this outside entity, as well as performing certain work functions for the entity. The Representative did not seek or receive firm approval to engage in any of these activities.
FINRA Sanctions
In accordance with the terms of the AWC, FINRA imposed upon Yniquez a $12,500 fine, a $1,600 disgorgement, and a 14-month suspension from association with any FINRA member in any capacity.
Bill Singer's Comment
Sometimes I got problems with FINRA's OBA and PST cases but not with this one. Frankly, it's as textbook a case of what FINRA should need to prove, and, as such, all the boxes seem to be checked. Yniquez did himself no favors by lying to Transamerica during its in-house investigation. My guess is that some of the 14 months of suspension reflect his lack of candor. For today at least, FINRA gets a thumb's up.