Radnor Research and Trading Company, based in the Philadelphia area, was censured and fined $50,000 per an Order Accepting Offer of Settlement containing findings that Radnor disregarded supervisory obligations that resulted in the failure to meet important reporting, disclosure, and compliance responsibilities. Department of Enforcement v. Radnor Research & Trading Company, et al., No. 2013036681701 (Nov. 2, 2015).
According to the Order, from February 2011 through March 2013, the firm had failed to report customer complaints, failed to update a registered representative’s Form U4 to ensure material information was disclosed to customers, and failed to maintain and enforce adequate supervisory systems and written procedures.
The Order reported that in late 2011, Radnor had failed to report two customer complaints that were made against its registered representatives. In one case, a customer claimed that certain trades were unauthorized and had demanded damages. In another case, a potential customer had claimed that a registered representative of the firm participated in unethical or illegal behavior, where possible market manipulation was suggested. The Order stated that Radnor never reported the complaints as requested, conduct FINRA deemed violative of Rules 4530 and 2010.
Further, the Order indicated that Radnor never reported the unauthorized trade complaint on the Form U4 of William Scholander, the registered representative named in the Complaint. The representative failed to ensure that his Form U4 was updated timely to reflect the complaint. FINRA found that the firm as well as Scholander had willfully violated FINRA By-Laws Article V, Section 2 and FINRA Rule 2010 in this regard.
FINRA also found that the firm did not have adequate supervisory systems and written procedures concerning customer complaint reporting and U4 disclosure. In one instance, a registered principal of the firm, Talman Harris, had prevented compliance personnel in the firm’s home office from reviewing the written complaint against Scholander, his business partner. The Order stated that once compliance staff became aware of the basis of the customer complaint, the firm still failed to respond appropriately. FINRA found that the firm and Harris had violated FINRA Rule 2010 and NASD Rule 3010 in this regard.
According to the Order, FINRA also found that the firm had failed to have adequate supervisory systems and written procedures concerning markup/markdown disclosures to customers and canceled trades. The firm reportedly failed to have proper supervision of Regulation S sales private placements and disclosures to customers purchasing the stock when the registered representatives in the firm were selling the same stock. Further, the firm was found to have failed to have adequate written procedures regarding due diligence with private placements. FINRA found that the firm had violated NASD Rule 3010 and FINRA Rule 2010 in this regard.
Finally, between February 2011 and February 2012, the firm was found to have failed to disclose markup/markdowns on twenty-nine riskless principal equity transactions to customers. FINRA found this conduct to be in violation of SEC Rule 10b-10, Section 10(b) of the Securities Exchange Act of 1934 and FINRA Rule 2010.
Public disclosure records reveal that William J. Scholander and Talman Harris have both been barred from association with any FINRA member in any capacity for committing fraud in violation of Section 10(b) of the Securities Exchange Act of 1934, Rule 10b-5, and FINRA Rules 2010 and 2020. Department of Enforcement v. Scholander et al., No. 2009019108901 (Dec. 29, 2014).
FINRA, via NASD Rule 3010(a), requires that firms and supervisory personnel establish and maintain a supervisory system that is reasonably designed to achieve compliance with applicable securities laws and regulations. Additionally, Rule 3010(b) requires that firms establish, maintain and enforce written procedures to supervise their business and registered representatives that are reasonably designed to achieve compliance with applicable securities.
Firms and individuals, not surprisingly, are prohibited from unauthorized use of customer funds, borrowing of a customer’s securities or funds, forgery, non-disclosures or misstatements of material facts, and various deceptions and manipulations. Such conduct can also be found to violate criminal and other civil laws, and be subject to sanction from the federal and state government bodies.
Securities brokerage firms have a duty to supervise their brokers and the sales practices of their brokers, and to review customer statements for, among other things, evidence of suitability, unauthorized trading, or excessive activity.
Guiliano Law Group
If you have been the victim of securities fraud and you have a complaint, you should consult with an attorney. The practice of Nicholas J. Guiliano, Esquire, and The Guiliano Law Group, P.C., is limited to the representation of investors in claims for fraud in connection with the sale of securities, the sale or recommendation of excessively risky or unsuitable securities, breach of fiduciary duty, and the failure to supervise. We accept representation on a contingent fee basis, meaning there is no cost unless we make a recovery for you, and there is never any charge for a consultation or an evaluation of your claim. For more information contact us at (877) SEC-ATTY.