Broker William Thomas Johnson Jr. has been permanently barred by the Financial industry Regulatory Authority (FINRA) for misappropriating about $100,000 in customer funds.
On June 1, Johnson submitted a Letter of Acceptance, Waiver and Consent (AWC) to settle a number alleged FINRA rule violations. He accepted and consented to an entry of findings by FINRA without admitting or denying the findings. FINRA accepted the AWC on June 26.
Letter of Acceptance, Waiver and Consent
According to the AWC, Johnson has been barred from associating with any FINRA member in any capacity. The AWC states that Johnson violated Section 10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5 propagated thereunder, making him subject to statutory disqualification. FINRA found that his violation was willful.
Johnson has not been associated with a FINRA member firm since June of 2010 when Next Financial Group Inc. of Houston, Texas, terminated his registration. He remained subject to FINRA’s jurisdiction because its by-laws allow for a disciplinary action to be filed up to two years after the misconduct. He first registered with a FINRA member firm in 1989.
In September of 2011, Kovack Securities Inc. of Palm Beach Gardens, Fla. – Johnson’s employer before Next Financial – notified FINRA of customer allegations of conversion against Johnson while he was registered with the firm. Johnson worked at Kovack from 2002 to 2009, according to FINRA public disclosure records.
The misconduct covered by the AWC occurred from June 2007 through December 2009, when Johnson worked for Kovack, and from March 2010 through June 8, 2010, during most of which time Johnson worked for Next Financial as a general securities registered representative.
In June 2007, a customer transferred $47,000 from his brokerage account to Johnson. Johnson said he would use the funds to purchase corporate bonds for the customer, but he never purchased any bonds, the AWC said. Instead, he deposited the money into a bank account under his control, and converted it to his own use, including the payment of personal expenses.
Between June 2007 and April 2010, the AWC said, a customer transferred about $53,000 from his personal bank account to Johnson for the supposed purchase of a certificate of deposit. Johnson took the money, deposited into his a bank account he controlled and used the funds for improper purposes, including the payment of personal expenses. He never purchased the certificate of deposit for the customer.
Through this misappropriation of funds, Johnson willfully violated Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 thereunder by knowingly or recklessly, employing a device, scheme or artifice to defraud in connection with the purchase or sale of a security. Violation of this federal law also requires direct or indirect use of means or instrumentality of interstate commerce, or the mails, or the facilities of a national securities exchange. Moreover, he violated the law by making untrue statements of material fact, and engaging in an act, practice, or course of business which operated or would operate as a fraud or deceit, the AWC said.
At various times, the misconduct also violated National Association of Securities Dealers (NASD) Rules 2110, 2120 and 2330(a) and FINRA Rule 2150(a), the AWC said.
In addition, through his misrepresentations and conversion of customer funds to his own use, Johnson failed to conduct of his business with high standards of commercial honor and just and equitable principles of trade in violation of NASD Rule 2110 and FINRA Rule 2010, the AWC said.
Johnson’s Previous Encounter With Authorities
This disciplinary action leading to the permanent bar was not Johnson’s first encounter with the authorities, according to the AWC. In 1988, Johnson was permanently barred from any association with broker-dealer firms or investment advisors by the State of Maine, Bureau of Banking, Securities Division, for securities fraud and selling unregistered securities. Maine lifted the bar against him in 2009.
In 1990, allegations that Johnson allowed at least five representatives to sell securities before they were registered resulted in Johnson filing a notice of voluntary dismissal with the State of Florida Department of Banking and Finance. Johnson violated the rules by allowing others to use his registered representative number, the AWC said.
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