TradeSpot Markets, Inc., headquartered in Davie, Florida, and Mark B. Beloyan (president, chief operating officer, and chief compliance officer) were censured by Financial Industry Regulatory Authority (FINRA) Department of Enforcement per an Order Accepting Offering of Settlement containing findings that the firm and Beloyan failed to effect compliant penny stock transactions, and failured to adequately supervise penny stock transactions. Department of Enforcement v. TradeSpot Markets, Inc., et al., No. 2013037033101 (Sept. 1, 2016). The firm faced a censure and fine of $10,000.00, and Beloyan was suspended from associating with any FINRA member in any capacity in connection with the disciplinary action.
According to the Order, between February 1, 2013, and March 31, 2015, the firm and Beloyan made recommendations to investors regarding penny stock transactions, despite not complying with rules and requirements of Securities Exchange of 1934 Section 15(h) and Rule 15g-9. Apparently, the infractions resulted from Beloyan providing customers suitability documents in connection with the penny stock transactions, for purposes of customers review and signature.
Particularly, the Order stated that fifteen transactions associated with twelve customers were identified as having no affirmative determination of suitability and documentation concerning such within the customers’ suitability statements prior to customers receiving documentation to review and sign. FINRA claimed that such suitability documents, referred to as a Customer Suitability Statements, were provided to customers despite there not being a determination by the firm and Beloyan of the suitability of the transactions beforehand, as Rule 15g-9 called for.
Apparently, Beloyan input dates alongside the customer signature sections in the agreement to purchase penny stock forms as well as suitability statements before the firm’s customers received such documents, whereby such dates had not accurately reflected the dates that customers signed the forms. In one case, two penny transactions were effected in the customer account of BAG, in which the suitability and agreement forms were not even completed.
FINRA additionally noted that the firm and Beloyan did not have adequate supervisory procedures that pertained to penny stock transactions. The Order stated that Beloyan was tasked with properly implementing the firm’s supervisory procedures. Yet, the procedures in reference to penny stock transactions, according to FINRA, did not identify how the customer suitability statements would be completed by the firm, nor did such procedures reference how suitability of penny stock transactions would be determined prior to customer review and signature.
Further, FINRA stated that the firm did not have written supervisory procedures regarding disclosures concerning penny stock transactions per Rule 15g, which included quotes for such penny stocks as well as the compensation that the firm and staff would receive. FINRA found that such deficient supervisory practices were violative of FINRA Rule 2010 and 3110, as well as NASD Rule 3010.
This is not the first time that the firm and Beloyan have faced disciplinary action in reference to penny stock transactions. The Order stated that TradeSpot was previously censured and fined $25,000.00, and Beloyan was suspended by FINRA from associating with any FINRA member in any capacity, as a result of an August 2011 FINRA disciplinary action containing findings that sales to customers of low-priced investments were effected that were not exempt from SEC registration, and which were not actually registered with the SEC. The firm and Beloyan were found by FINRA to have had deficient supervisory procedures and procedures concerning unregistered and non-exempt securities distributions.
Additionally, in January of 2012, Beloyan and his firm were fined $13,500.00, and Beloyan was again suspended by FINRA from associating with any FINRA member in any capacity, amid findings that equity securities were recommended to investors through email communications which contained misleading and unbalanced facts, and which also omitted material information.
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