Frank Howard Zito of Ridgeland Mississippi a stockbroker formerly registered with Merrill Lynch Pierce Fenner Smith has been fined $10,000.00 and suspended for 16 months from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity supported by findings that Zito engaged in private securities transactions and outside business activities while registered with Merrill Lynch. Letter of Acceptance Waiver and Consent No. 2018059223501 (Dec. 18, 2020).
According to the AWC, Merrill Lynch customer RF had been advised by Zito to invest in Madison Timber Properties LLC (MTP). FINRA indicated that the customer had been told about MTP from Zito and was educated by Zito as to how the investments in that issuer worked. Zito convicted RF to make an investment and helped secure the customer’s purchase.
The AWC stated that Zito also spoke to RF on a routine basis about the customer’s promissory note holdings as well as the payments associated with the notes. RF initially held investments in three promissory notes at the same time representing a $1,000,000.00 outlay of principal. FINRA indicated that the customer had invested up to $5,000,000.00 worth of promissory notes by the time that Securities and Exchange Commission (SEC) charged MTP with operating a Ponzi scheme. Zito was paid $100,000.00 for his sales efforts.
FINRA indicated that Zito did not tell Merrill Lynch about any of the 15 promissory notes purchases that he helped RF make. He was issued four compliance certifications from Merrill Lynch between 2014 and 2017. In submitting those certifications, Zito denied having made any recommendations of unapproved products to customers of the securities broker dealer in outside securities transactions. FINRA determined that Zito violated FINRA Rules 2010 and 3280 as well as National Association of Securities Dealers (NASD) Rule 3040.
The AWC stated that Zito also took part in outside business activities which were not authorized by Merrill Lynch. He helped MTP find underwriting for a private placement equity. He contacted financial institutions about their possible interest in an offering. The stockbroker helped arrange a meeting between a business advisory firm and the offering’s backers. Zito received $130,000.00 in payments from MTP by March of 2018 for his efforts.
FINRA noted that Zito concealed his compensation relating to his work for MTP between October of 2012 and March of 2018. The stockbroker submitted five annual certifications to the securities broker dealer that all reflected that he had not been compensated by third parties for outside business activities. Zito violated FINRA Rules 2010 and 3270.
This is not the first time that Zito has been sanctioned by a securities regulator for selling away. He consented to sanctions including heightened supervision and disgorgement of $200,000.00 by the State of Mississippi founded on accusations of Zito’s failure to disclose securities transactions relating to MTP. Case No. LS-18-3126 (Nov. 2, 2018).
FINRA Public Disclosure additionally reveals that Zito is referenced in a customer initiated investment related written complaint in which the customer requested $140,000.00 in damages based upon allegations that misrepresentations of mutual funds had been made by Zito while associated with Morgan Keegan Company Inc.
Zito was discharged by Merrill Lynch on June 25, 2018 supported by accusations of selling away and failure to disclose outside business activities all of which violated Merrill Lynch’s standards. He has been associated with Coker Palmer since August 31, 2018.