The Financial Industry Regulatory Authority (FINRA) has announced that it barred broker George E. Johnson from the securities industry for allegedly engaging in manipulation of stock trading, and for committing fraud. FINRA also imposed a 6-month suspension against a second broker, Joseph Mahalick, and a 2 year suspension against a supervisor, Christopher Wayne. All three individuals are reported to have worked at the time for the brokerage firm Meyers Associates, L.P. out of the firm’s Chicago, Illinois office. Mr. Johnson has been working for and was registered by Newport Coast Securities, Inc. from April 2013.
FINRA’s Order stated that during May 2012, Mr. Johnson manipulated the market for the common stock of IceWEB, Inc. (OTCBB: IWEB) by soliciting customers to buy the stock while also soliciting other customers to sell at increasingly higher and artificially inflated prices and frequently effecting matched orders among his own customers. Before and during this time, FINRA’s Order set forth that Mr. Johnson distributed to his clients misleading research and sales materials concerning IWEB, and failed to disclose material information.
The Order alleged that Mr. Johnson first became involved with IWEB when his employer acted as a placement agent for the company, and that he continued to recommend the stock to his clients through private placements and in the open market, despite the company having years of financial issues. At the time, IWEB stock was valued at around .12/share, and the Order alleged that Mr. Johnson solicited purchases and sales in the stock to artificially increase the share price to .17/share, allegedly for the purpose of earning placement agent business from IWEB to earn substantial placement fees.
FINRA’s Order also stated that from July to August 2012, Mr. Johnson violated industry rules by failing to inform his customers of a conflict when he solicited customers to purchase Snap Interactive, Inc. stock (OTCBB: STVI), while he simultaneously sold his and his wife’s holdings in the stock.
A review of Mr. Johnson’s FINRA BrokerCheck Report discloses that he has been the subject of seven customer complaints over the years, including one 2015 claim alleging unsuitability and reportedly seeking $2.6 million in damages.
In a separate Order, FINRA alleged that Mr. Mahalick sought to cover up Mr. Johnson’s violations by misidentifying the broker of record on three account applications and over 100 memoranda to the broker-dealer Meyers Associates.
Finally, in a third Order, FINRA alleged that Mr. Wynne disseminated “spurious” research and sales materials, falsified firm records and failed to supervise Mr. Johnson, who engaged in market manipulation and failed to disclose conflicts of interest in connection with securities transactions.
Brokers are required by securities laws and industry rules to not engage in securities violations, such as artificially inflating stock prices for personal gain. Brokers are further required to “know their customer” and properly disclose the risks and benefits of investments that are at a minimum suitable for the investor, given each investor’s specific risk tolerance, age, investing experience, etc. Brokers who engage in securities violations and violate industry rules may be subject to actions by customers for recovery of damages caused by those actions.