John Batista Bocchino and Rafael Barela Jacinto, of New York, New York, stockbrokers with Morgan Stanley Smith Barney, were charged by Financial Industry Regulatory Authority (FINRA) Department of Enforcement in a Complaint alleging that the individuals engaged in material misrepresentations and omissions concerning bond investments, unauthorized activity in connection with such, and falsified firm records. Department of Enforcement v. Bocchino et al., No. 2012032019101 (Sept. 1, 2016).
The Complaint stated that from June of 2009 through March of 2012, Bocchino and Jacinto primarily focused their business transactions in sovereign and other government debt that were issued through Venezuela and other countries in South America. Apparently, Bocchino, who was one of Morgan Stanley’s largest producers, received compensation estimated at $2,300,000.00 in 2011 and an estimated $2,260,000.00 in January through March of 2012.
Barela worked in the capacity of Bocchino’s sales assistant, where he handled the opening of new accounts, facilitated account documents and effected trades. Barela reportedly worked in the firm’s New York Branch with Bocchino, and assisted Bocchino in Morgan Stanley’s back office in order to settle trade transactions.
FINRA alleged that Morgan Stanley restricted trades of Venezuelan bonds in 2010, amid concerns of compliance and reputational risk stemming from transactions involving currency conversions. Apparently, this was due to there being insufficient transparency between Venezuela and the United States concerning money laundering risks. FINRA stated that brokerage firms in the United States frequently were unable to ascertain the customers of banks in Venezuela in order to vet risks of money laundering, tax evasion, and corruption.
FINRA claimed that Morgan Stanley, in October of 2010, disallowed staff members from assisting customers with currency conversion transactions which involved delivery of Venezuelan bonds into investor accounts, followed by a sale of such bonds for United States dollars, and a subsequent transfer of United States dollars from investor accounts. Apparently, further restrictions were placed by the firm on effecting Venezuelan bonds in 2011, where Morgan Stanley only allowed such transactions if customers had purchased such Venezuelan bonds in United States dollars. The Complaint alleged that Morgan Stanley’s restrictions were severely detrimental Bocchino’s securities business.
According to the Complaint, between May of 2011 and March of 2012, at a time when Bocchino and Jacinto were associated with Morgan Stanley, they concocted a scheme designed to sell restricted securities in Venezuelan bonds in violation of Morgan Stanley’s policies. The Complaint stated that the Bocchino and Jacinto utilized fake accounts in which United States finance entities were appropriated in order to carry out the scheme.
The Complaint stated that fake nominee accounts were created to benefit concealed entities, thirteen in total. FINRA alleged that Bocchino and Barela placed bond transactions in the nominee accounts in order to make it seem as though the individuals were in compliance with Morgan Stanley’s aforementioned restrictions. The two reportedly effected several hundred trades in such fake nominee accounts to make the unauthorized transactions, falsifying Morgan Stanley’s firm documents in the process. As a result, Bocchino and Barela were able to avoid having to furnish Morgan Stanley with confirmations on the buy-side of transactions, and concealed customers’ identities.
The Complaint stated that $190,000,000.00 worth of Venezuelan bonds were able to be traded by Bocchino and Jacinto as a result of their scheme. Throughout the process, Bocchino and Jacinto reportedly circumvented supervisory scrutiny and other supervisory protocols. FINRA claimed that Bocchino and Jacinto violated FINRA Rules 2010 and 4511, and NASD Rule 3110.
Public disclosure records reveal that Bocchino has been subject to three public disclosure incidents. On October 8, 2009, Bocchino settled a customer dispute for $225,000.00 after customers alleged that Bocchino engaged in excessive and unauthorized trades that were unsuitable for such customers. Prior to FINRA’s disciplinary action against Bocchino, Morgan Stanley terminated Bocchino and Barela for the unauthorized effecting of securities transactions in customer accounts.
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