Thursday, September 20, 2018

SEC Affirms FINRA’s Findings of EKN Stockbroker’s Form U4 Violations

The Securities and Exchange Commission (“SEC”) affirmed a Financial Industry Regulatory Authority (“FINRA”) Decision in which EKN Financial Services Inc. stockbroker, Louis Ottimo, was assessed a $25,000.00 fine and two-year suspension in all capacities pursuant to findings that he willfully failed to accurately and timely update his Uniform Application for Securities Industry Registration or Transfer (“Form U4”) to reflect judgments, unsatisfied tax liens, and a bankruptcy filing. (In the Matter of the Application of Louis Ottimo, Admin. Proc. File No. 3-17930 (June 28, 2018).

Back on August 22, 2013, FINRA’s Department of Enforcement filed a Complaint against Ottimo alleging that he, inter alia, violated FINRA Rules 2010, 1122, NASD IM-1000-1, and Article V, Section 2(c) of FINRA’s By-Laws by deliberately failing to disclose facts on his Form U4. An Extended Hearing Panel found Ottimo to have committed the violations, and assessed a $25,000.00 fine and two-year suspension; however, sanctions were not imposed in light of Ottimo being barred by the Extended Hearing Panel for a more serious act: committing securities fraud in violation of Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5.

On appeal, the National Adjudicatory Council affirmed the Extended Hearing Panel’s findings of Ottimo’s Form U4 violations. Ottimo subsequently appealed to the SEC, who sustained FINRA’s findings with respect to Ottimo’s Form U4 violations.

Ottimo became registered with EKN Financial Services Inc. on March 9, 2009. Because he was registering with a FINRA member firm, Ottimo was obligated to submit a Form U4. Ottimo, like any associated person, was obligated by FINRA rules to keep his Form U4 current at all times. Under FINRA By-Laws Article V, Section 2(c), this meant that Ottimo was required to update his Form U4 within thirty days of learning facts or circumstances giving rise to the need to amend the form.

Question 14.M on the Form U4 prompted Ottimo to disclose whether he had any liens or judgments that were unsatisfied, and question 14.K prompted Ottimo to disclose whether he, or any organization that he controlled, filed a bankruptcy petition within the prior ten year period. The findings stated that after Ottimo commenced employment with EKN Financial Services Inc., he continually neglected to accurately and timely report information on his Form U4 concerning a bankruptcy filing, six unsatisfied civil judgments and seven unsatisfied liens.

Specifically, the findings stated that Ottimo failed to report five of the tax liens issued from January 2010 to April 2010 on his Form U4 until September 2010. In addition, a November 2010 tax lien was not reported by Ottimo on his Form U4 until June 2011, and a June 2011 tax lien was not reported until April of 2012. Evidently, Ottimo’s reporting of the liens occurred well after FINRA’s thirty day time limit for reporting. Critically, Ottimo revealed in a FINRA hearing that he was cognizant about FINRA’s requirements – but he obviously disregarded them.

Further, from March 2008 to April 2010, a total of six civil judgments had been entered against Ottimo, where Ottimo failed to accurately and timely report those judgements. One of the judgments against Ottimo on June 4, 2009 had been vacated on September 9, 2009. Despite Ottimo having amended his Form U4 on four occasions between June 2009 and August 2009, he failed to report that unsatisfied judgment. Notwithstanding the judgement being vacated, Ottimo was still subject to the reporting requirement.

In addition, Ottimo failed to report a bankruptcy petition for a company he founded and which he served as president, Wheatley Capital Corporation. The findings stated that Wheatley filed for bankruptcy on April 27, 2010, and the bankruptcy petition had been signed and submitted by Ottimo. Ottimo evidently neglected to make the bankruptcy known on his Form U4 until April 19, 2002.

In the Opinion, the SEC confirmed FINRA’s findings that Ottimo’s failure to make timely disclosures of liens, civil judgments and a bankruptcy was violative of FINRA By-Laws Article V, Section 2(c). SEC also found that by way of Ottimo’s Form U4 being misleading and inaccurate, he violated FINRA Rules 1122 and NASD IM-1000-1. And as a consequence of violating FINRA Rules 1122 and NASD IM-1000-1, the SEC confirmed that Ottimo violated FINRA Rule 2010.

Moreover, the SEC concluded that Ottimo was subject to a statutory disqualification because of his (1) willful conduct in neglecting to update his Form U4, and (2) material omissions relating to his Form U4. The SEC turned to Securities Exchange Act Section 3(a)(39)(F), which provides a basis for statutory disqualification when a FINRA member intentionally omits a material fact in applying for association with a member.  Finally, the SEC found Ottimo’s conduct willful given Ottimo’s knowledge of his disclosure obligations and the significance of that information (six unsatisfied civil judgements that totaled more than $440,000.00 and unsatisfied tax liens that totaled more than $260,000.00) to investors, employers and regulators.

Interestingly enough, the SEC reversed a part of FINRA’s fraud findings, and in so doing, set aside the barring of Ottimo and remanded the matter to FINRA to determine what sanctions it deems appropriate. The SEC invited FINRA to reconsider its decision not to impose sanctions against Ottimo for his willful Form U4 violations.

Financial advisors and stockbrokers often question whether to make disclosures concerning negative events. If you are in one of those situations, it is best to be careful versus taking a risk that could possibly end your career in the securities industry. If you need assistance with your Form U4 matter, call (314) 563-2490 today to consult with the experienced counsel at Cosgrove Law Group.

The attorneys of Cosgrove Law Group, LLC represent investment advisors, brokers, and other associated persons nationwide in securities employment and regulatory matters, including U-5 defamation matters. Our attorneys also practice in a variety of other areas of law.  If you have a legal matter or concern, please give us a call and speak directly with one of our experienced professionals.

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