Published on:

FOG Equities and Supervisors Fined and Suspended for AML & FFI Supervisory Failures

FOG Equities LLC (FOG) of Chicago, Illinois, Scott Epstein of Crystal Lake, Illinois, and David Spack of San Fransisco, California submitted a Letter of Acceptance, Waiver and Consent (AWC) to the Department of Enforcement of the Financial Industry Regulatory Authority (FINRA) for allegedly failing to establish, implement and maintain an adequate supervisory system and written supervisory procedures for the FOG’s low-priced securities business that were reasonably designed to achieve compliance with Section 5 of the Securities Act of 1933.

FINRA investigators found that FOG, Epstein, and Spack failed to establish, maintain and implement anti-money laundering (AML) procedures reasonably designed to detect and report suspicious transactions related to low-priced securities transactions. Between May 2014 and February 2015, the Respondents failed to detect and investigate ”red flags” indicative of potentially suspicious account activity in violation of FINRA Rules 3310(a) and 2010.

Epstein, who was the designated principal for FOG, was responsible for the daily supervision of the firm and ensuring proper policies and procedures were in place, while Spack was responsible for maintaining the firm’s procedures. FINRA found that FOG’s procedures were not designed adequately to assess whether securities were registered or appropriately exempt from registration with the Securities Exchange Commission (SEC). FINRA alleged that due to this lack of supervision, penny stock liquidations FOG facilitated occurred without any review for compliance with Section 5. The investigation further revealed that Epstein and Spack relied on their customers to do all due diligence with respect to penny stocks investments.

Furthermore, FINRA alleged Epstein and Spack, acting through FOG, maintained inadequate AML and foreign financial institution (FFI) procedures in compliance with the Bank Secrecy Act. Without admitting or denying the FINRA allegations, the Respondents, in submitting an AWC accepted the sanctions. FOG was ordered to pay a $60,000 fine. Epstein was fined $5,000 and suspended from association with any FINRA member for 30 days. Spack was ordered to pay a $5,000 fine as was suspended from association with any FINRA member in any capacity for 15 days.

FINRA rules require brokerage firms to establish and implement a reasonable supervisory system to protect customers from the risks associated with investing. The implementation of the rules requires supervisors to monitor their employees to ensure compliance with federal and state securities laws, securities industry rules and regulations, as well as the brokerage firm’s own policies and procedures. If broker-dealers and their supervisors fail to establish and implement these protective measures, they may be held liable to account holders for investment losses which stem from their employees’ misconduct. Therefore, investors who have suffered losses due to a brokerage firm’s failure to supervise the unsuitable recommendations of its representatives can bring forth claims to recover damages against firms, like FOG Equities, which have a duty to supervise employees in order to protect their customers’ interests.

Have you suffered losses in your FOG Equities account due to supervisory failures? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation. Mr. Pearce is accepting clients with valid claims against FOG Equities stockbrokers who may have engaged in misconduct and caused investors losses.

The most important of investors’ rights is the right to be informed!  This Investors’ Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida.  For over 35 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues.  The lawyers at our law firm are devoted to protecting investors’ rights throughout the United States and internationally!  Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.