EKN Financial Serivices (formerly known as Ehrenkrantz King Nussbaum Inc) had accumulated a dubious regulatory rap sheet over the years. But the Financial Industry Regulatory Agency decided enough was enough and expelled EKN for defying a 2008 SEC cease-and-desist order. The order barred CEO Anthony Ottimo from acting in a supervisory role, but there was ample evidence Ottimo contnued to maintain an active role overseeing operations at the New York-based broker-dealer.
Disregard for regulation appeared to be part of the culture at EKN. EKN’s regulatory disdain is perhaps best put in context by its hiring of Daniel James Gallagher. By the time EKN hired Gallagher in 2010, he may have been among the most disciplined — and we don’t mean that in a good way — General Securities Representative (GSR) on the planet. Between 1994 and 2001, Gallagher was involved in at least seven arbitration cases for alleged sales practices violations. The settlements in behalf of Gallagher’s customers topped $1 million. And Gallagher was just getting started. At least five states had suspended or had imposed conditions of heightend supervision on Gallagher. You can read more about Gallagher’s impressive track record here.
In the end, it was a match made in hell — the GSR who required heightened supervision for investment malfeasance and the CEO who was barred from a supervisory role for failing to prevent skulduggery.
WSW Lesson: Bad broker-dealers and nefarious GSRs don’t die. Like the rodents in a game of Whac-a-Mole, they resurface. Before working with a broker-dealer, always check the regulatory track record of the company and its principals. Even if you think a GSR is a top dog, check his or her pedigree. He or she just might be a weasel in disguise.
Sources and Coverage:
Financial Advisor Magazine, FINRA Expels EKN Financial Services for Defying SEC Order
InvestmentNews, by Andrew Osterland, FINRA Expels Firm for “Brazen” Defiance of SEC
2012 FINRA Press Release Expeling EKN Financial Service For Defying SEC Order and for Numerous Compliance Violations
2012 Consent Order from the Arkansas Securities Comissioner for charging inapprorpriate handling fees.
2011 Consent Order from the Connecticut Department of Banking for charging inappropriate handling fees.
2011 FINRA Disciplinary Hearing for Daniel James Gallagher andVision Securities
2010 Disciplinary and Other FINRA Actions for selling bonds in EKN’s account to customers at unfair prices
2008 SEC Administrative Order barring Ottimo for allowing the use of multiple accounts mask order limits and other violations
2007 Montanta State Auditor Orders EKN to Cease and Desist for account churning, unsuitable trades and excessive fees and commissions
2006 FINRA Press Release, NASD Fines EKN FInancial Services, Suspends Principals for Securities Registration Violations in PIPE Deals