Callaway Financial Services, Inc. (CRD #104003, Arlington, Texas) and Corey Neil Callaway (CRD #1279194, Registered Principal, Arlington, Texas) recently submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $40,000. FINRA imposed a lower fine after it considered, among other things, the firm’s revenues and financial resources. Callaway was fined $10,000 and suspended from association with any FINRA member in any principal capacity for two months. Without admitting or denying the findings, the firm and Callaway consented to the described sanctions and to the entry of findings that the firm, acting through Callaway, its principal, failed to establish and implement an adequate AMLCP. The findings stated that the firm’s AML program required it to monitor for potentially suspicious activity and AML red flags, investigate potentially suspicious activity and report suspicious activity by filing a special activity report form (SAR-SF), as appropriate. The findings also stated that the firm and Callaway failed to adequately implement or enforce the firm’s AML program and to otherwise comply with their AML obligations, as they did not document any identification or review of numerous transactions to determine if they were, in fact, suspicious and were required to be reported on a SAR-SF. The findings also included that the firm’s AML program required that it either conduct automated monitoring with exception reports its clearing firm provided, or manually monitor a sufficient amount of account activity to permit identification of patterns of unusual size, volume, pattern or type of transactions, or any of the red flags included in the written AML program; the firm and Callaway did neither.
FINRA found that the firm’s AML program provided that the AML Compliance Officer be responsible for monitoring, documenting when and how it is carried out, and report suspicious activities to the appropriate authorities; the firm and Callaway did not document such review and did not report what were clearly suspicious activities. FINRA also found that Callaway and the firm learned that a customer had a criminal record, yet did not inquire into the nature of the crimes; this knowledge should have caused Callaway and the firm to give heightened scrutiny to all future activity in the accounts. In addition, FINRA determined that there was extensive activity involving penny stocks and low-priced stocks where shares were delivered into the account, quickly sold, and the proceeds wired to bank accounts belonging to the customer; the penny stock deposits and liquidations and the extensive wire transfers of funds out of the customer’s accounts were red flags the firm and Callaway failed to either detect or investigate. Moreover, FINRA found that the firm and Callaway failed to inquire into the specifics of the customer’s business, even as they were facilitating the removal of restricted legends from the shares purportedly given to the customer for his work; notably, the firm did not ask for, and the customer did not provide, an explanation of why the customer had accounts in the names of multiple corporate entities that were receiving shares of the same restricted stocks.
The suspension is in effect from June 6, 2011, through August 5, 2011.
This information which is publicly available on FINRA’s website has been provided by The White Law Group, LLC.
If you have questions about investments you made with Callaway Financial Services, Inc., the securities attorneys of The White Law Group may be able to help. To speak with a securities attorney, please call the firm’s Chicago office at 312/238-9650.
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