Steven Pagartanis of Setauket New York a stockbroker formerly registered with Lombard Securities Incorporated who is barred from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity based upon consenting to findings that he obstructed a FINRA investigation into allegations that he misappropriated customer funds and made fraudulent misrepresentations. Letter of Acceptance Waiver and Consent No. 20180576592-01 (Apr. 13, 2018).
According to the AWC, Pagartanis was terminated from Lombard Securities Incorporated based upon accusations that he failed to cooperate with the firm in regard to an internal investigation into Pagartanis’ involvement with investment transactions being effected away from the firm. The AWC stated that on March 30, 2018, FINRA submitted a request to Pagartanis for his testimony on April 10, 2018, according to Rule 8210. Evidently, FINRA sought information related to allegations of Pagartanis’ misappropriation of funds belonging to customers and fraudulent misrepresentations regarding their investments.
The AWC stated that counsel for Pagartanis reached out to FINRA personnel to confirm that Pagartanis understood FINRA’s request but would at no point provide recorded testimony in regard to his activities. Pagartanis ultimately failed to appear before FINRA personnel by the April 10, 2018 deadline. Consequently, FINRA found Pagartanis’ conduct violative of FINRA Rules 2010 and 8210.
FINRA Public Disclosure reveals that Pagartanis has been identified in six customer initiated investment related disputes that pertain to accusations of his wrongful conduct while employed with Woodbury Financial Services, Cadaret, Grant & Co., Inc. and Lombard Securities Incorporated. Particularly, a customer initiated investment related arbitration claim regarding Pagartanis’ conduct was settled for $80,000.00 in damages based upon allegations that misrepresentations had been made to the customer concerning a variable annuity guaranteed minimum income benefit rider and the customer was placed into an annuity that was not suitable. FINRA Arbitration No. 14-01052 (Oct. 19, 2015).
Another customer filed an investment related arbitration claim concerning Pagartanis’ actions where the customer sought $245,000.00 in damages founded on accusations of misrepresentation, suitability, negligence and fraud in reference to the customer’s real estate investment trust holdings. FINRA Arbitration No. 17-00323 (Feb. 28, 2017). Between February 26, 2018 and March 26, 2018, four more customers filed investment related disputes involving Pagartanis’ activities in which the customers requested $730,570.99 in damages supported by allegations that the customers were advised by Pagartanis to make checks payable to Genesis Company of Canada for investments in real estate securities that were not approved by the firm.
On May 30, 2018, the Securities and Exchange Commission today charged Pagartanis with defrauding long-standing brokerage customers in an $8 million investment scam. According to the SEC’s complaint, “Steven Pagartanis, who was affiliated with a registered broker-dealer, told some investors – including retirees who had been Pagartanis’s customers for many years – that he would invest their funds in either a publicly-traded or private land development company. He promised that the funds would be safe and also promised guaranteed monthly interest payments on the investments. At Pagartanis’s direction, his investors wrote checks payable to a similarly-named entity that was secretly controlled by Pagartanis. In all, the customers invested approximately $8 million, which Pagartanis used to pay personal expenses and make the guaranteed “interest” payments to his customers. To conceal the scam, which unraveled earlier this year when Pagartanis stopped making the so-called interest payments to customers, Pagartanis created fictitious account statements reflecting ownership interests in the land development companies.”
Courts and securities arbitration panels, in identical circumstances, have long held brokerage firms responsible for the conduct of their registered representatives in “selling away” cases based upon the broker-dealer’s failure to supervise. See, e.g., Hunt v. Miller, 908 F.2d 1210 (4th Cir. 1990); Harrison v. Dean Witter Reynolds, Inc., 974 F.2d 873 (7th Cir. 1992)(firm liable for agent’s selling away activities); Hollinger v. Titan Capital Corp., 914 F.2d 1564 (9th Cir. 1990)(same); State Security Insurance Co. v. Burgos, 583 N.E.2d 547, 557 (Ill. 1991)(liability for firm where broker acted with apparent authority); Salmon v. New England Securities Corp., FINRA Arb. No. 01-06935 ($1.4 million award against member for associated persons “selling away” third party notes); Sleight v. Centaurus Financial, FINRA Arb. No. 10-00536; Brezden v. Associated Securities Corp., FINRA Arb. No. 07-03054 (reasoned award against member for failure to supervise agent’s selling away activties); Chandler v. FSC Corporation, NASD Arb. No. 05-0443, (reasoned award against member for failure to supervise agent’s unauthorized selling away); Battle v. Northeast Securities, Inc., NASD Arb. No. 06-04110, (same)(reasoned award); Dobison v. Jospehthal, Lyons & Ross, Inc., NASD Arbitration No. 96-00963 (arbitration award against brokerage firm for broker’s selling away of unregistered notes and warrants). Securities regulators have also taken the same approach and routinely hold broker-dealers responsible for the “failure to supervise,” when their representatives engage in this outside activity. In Re DBCC (No. 5) v. Charles E. French, Complaint No. 5940026, May 18, 1995 (sanctions against member for selling away activity of broker); Siriani v. United States Securities & Exchange Commission, 677 F.2d 1284 (9th Cir. 1982); Stoiber v. Securities & Exchange Commission, 161 F.3d 745 (D.C. Cir. 1998).
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