Ex-Merrill Broker Who Zealously ‘Rode the Calendar’ Pays Again
The urge to get allocations of new equity offerings for customers that cost Joseph Yanofsky his job at Merrill Lynch two years ago has now led him to accept a fine and suspension over his conduct.
The Financial Industry Regulatory Authority on Tuesday disclosed on its disciplinary actions website that the Colorado-based broker agreed to a $10,000 fine and a 20-day suspension for improperly exercising discretion in customer accounts and for causing Merrill to maintain inaccurate books and records.
Yanofsky’s settlement, which he accepted without admitting or denying Finra’s enforcement findings, illustrate the difficulties brokers have in securing IPO and other syndicate deals when they do not have discretion to trade client accounts. The challenge is complicated further for brokers of firms in western time zones, said a person familiar with Yanofsky’s situation.
“Registered representatives often had a short window of time within which to speak to customers about the offering, transmit any relevant offering documents, and obtain customer authorization to purchase shares in the offering,” Finra wrote in the letter of acceptance, waiver and consent (AWC) signed by Yanofsky, noting that the deals are often launched and concluded in less than 24 hours.
Yanofsky responded to the pressure by having nine customers between May 2012 and May 2015 verbally express “their general desire and authorization to participate in every syndicate offering [Merrill Lynch] made available,” the letter said, though “in many cases he participated….on their behalf without having obtained even verbal authorization at any point following the offering’s launch.”
He compounded his zealous pursuit of the allocations by having a subordinate beginning in June 2014 “go into the office early in the morning and enter syndicate offering orders as soon as ticketing opened” by using another broker’s login credentials and computer, the letter said. The subordinate was not at first licensed and even after receiving a license was order to continue the ploy to increase allocation by entering “multiple simultaneous orders.”
Yanofsky, now a rep with independent broker-dealer First Financial Equity Corp. in Greenwood Village, Col, did not return a call for comment. His lawyer, Alan Friedberg, said that the relatively light fine and suspension reflects the enforcement panel’s sympathies to the facts of the case.
“That’s what they consider to be a minimum sanction,” said Friedberg, noting that the three rule violations cited by Finra and the offenses “didn’t do anything to harm customers.”
Merrill Lynch fired Yanofsky in May 2015 for “allegations related to exercising discretion in non-discretionary accounts,” providing inaccurate responses to related internal compliance questionnaires, directing an employee to enter trades using another employee’s identification and password and failing to report a customer complaint on a timely basis, according to Yanofsky’s BrokerCheck report.
The broker, who began his career as a broker in 1979 with Merrill prior to stints at E.F. Hutton, PaineWebber and Hanifen, Imhoff before rejoining Merrill in 1990, has been working as an independent contractor with FFEC under heightened supervision under conditions imposed by Colorado’s state securities commissioner, according to an attachment to the Finra AWC. The state order, which expires in October, 2017, also prohibits him from participating in “syndicate transactions of any kind.”
Yanofsky’s partner at Merrill, Brooke Clements, was terminated by the firm that month for allegations that indicate he allowed his password and ID to be used in the scheme to get allocations, according to Clements’ BrokerCheck history. The advisor, who works with Yanofsky at FFEC, was never charged by Finra enforcement staff, Friedberg said.
A third member of the Merrill team, Richard Batenburg, was terminated in December 2015 for “conduct including sharing confidential information with a third party outside of the firm and conduct inconsistent with firm policy regarding selling away,” according to his BrokerCheck report.
Batenburg, now a partner at Cliintel Capital Management, a Denver venture capital firm that invests in the cannabis industry, said he left Merrill voluntarily. He flaunts himself on a , as “the single most successful adviser Merrill had ever had in the training program—raising over 70 million in just 1.5 years,” an assertion he repeated in a phone interview.
A Merrill spokesman declined to comment.
Yanofsky accumulated eight client complaints over his 37-year career, according to his BrokerCheck history. Of the four filed since 2015, two were denied and another two settled for less than one fourth of the amount requested. Merrill covered the settlements and reached them without consulting Yanofsky, according to Friedberg.