Global Arena Capital Principal Barred for Supervisory Failures
Kevin Edward Hagan, a trading and operations principal with Global Arena Capital Corp, was permanently barred from associating with any Financial Industry Regulatory Authority (FINRA) member in any principal capacity and fined $15,000 in connection with findings that Hagan had failed to appropriately discharge his responsibilities as supervisor for his branch, including failures as designated reviewer of his branch’s exception and trade blotter. Letter of Acceptance, Waiver, and Consent No. 2014043542404 (Sept. 14, 2015).
According to the AWC, from January 23, 2014 – April 14, 2014, while Hagan was branch manager for Global Arena, brokers in the firm had made material omissions and misrepresentations to customers regarding the sale of junk bonds. Critically, the AWC indicated that when brokers made recommendations of such bonds that were actually trading at significant discounts, they made meritless predictions regarding the bonds being called at par and how customers would be due a substantial return on their investment in the near term.
The AWC noted that the senior brokers of the branch commanded the junior brokers to engage in cold calling to prospective investors by using faulty sales scripts to lure investors into opening up accounts. Brokers, according to the AWC, further abused sales practices by making unsuitable recommendations, engaging in unauthorized and excessive trading, and churning of client accounts. These actions resulted in considerable customer losses.
The AWC further indicated that Hagan never took proper steps to become educated about his supervisory role, which included failing to supervise the registered representatives or ensure supervision of the registered representatives’ communication with clients. Rather, according to the AWC, Hagan was busy booking various bond trades and executing certain equity orders.
The AWC noted that Hagan failed to discharge his responsibilities for reviewing his firm’s trade blotter from February 2014 – June 2015. Hagan reportedly never took any steps to ensure the trades were suitable and complied with federal securities laws and FINRA rules. Hagan, according to the AWC, would simply approve all transactions that appeared on the firm’s trade blotter if the firm’s electronic system did not flag a trade for an exception to be made.
The AWC indicated that Hagan would also fail to determine whether any flagged transactions within an Account Daily exception report (a report that reported turnover and velocity alerts to identify possible excessive trading) were suitable for approving. Rather, the AWC noted that Hagan would simply approve trades that were marked as solicited. Hagan reportedly even cleared transactions by claiming that flagged transactions were not at risk for excessive trading despite having no knowledge or understanding as to whether his explanations had any merit. Consequently, according to the AWC, thousands of potentially faulty trades were not appropriately reviewed by Hagan. FINRA found Hagan’s conduct in this regard to have violated FINRA Rules 2010 and 2110, and barred Hagan from acting as a principal as a result.
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.
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, Esq., 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.