Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Monday, November 5, 2007

FINRA Expells Firm for AML Violations

FINRA announced today that it has expelled Franklin Ross, Inc. (FRI) of Princeton, NJ from FINRA membership for repeatedly violating anti-money laundering (AML) rules. FINRA also imposed fines and suspensions against two of the firm's principals - its former president, Mark G. Ross, Jr., and its current president, Kevin K. Herridge. By federal statute, a firm must be a FINRA member in order to conduct a public securities business.

FINRA found that FRI repeatedly violated anti-money laundering (AML) rules by failing to investigate and report numerous suspicious transactions; failing to obtain adequate background information on new customer accounts; failing to conduct an independent test of its AML program; and failing to provide AML training. FRI and Ross also violated supervisory, recordkeeping and registration provisions.

FINRA found that, at various times from February 2004 through September 2006, FRI's clientele included notorious stock promoters and others who had been barred by FINRA or disciplined by the Securities and Exchange Commission (SEC) or had criminal histories - including one customer who had been convicted for money laundering. FINRA further found that in at least a dozen instances, FRI customers sold large blocks of penny stocks that were linked to allegedly fraudulent schemes.

In addition to expelling the firm, FINRA suspended Ross for two years in a principal capacity and 90 days in all capacities and fined him $35,000. FINRA suspended Herridge for six months in a principal capacity and 30 days in all capacities and fined him $25,000. FINRA also ordered both individuals to obtain substantial additional AML training over the next two years.  In concluding this settlement, FRI, Ross and Herridge neither admitted nor denied the charges, but consented to the entry of FINRA's findings.

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