Kcd Financial, Inc.

Allegations: ACTED IN CONTRAVENTION OF SECTION 5 OF THE SECURITIES ACT OF 1933, WILLFULLY VIOLATED SEC RULES 17A-4(B)(4), 17A-4(F)(2), VIOLATED FINRA RULE 2010, NASD RULES 2210, 3010, 3110: THE FIRM WAS AWARE OF REGISTERED REPRESENTATIVES' USE OF CERTIFICATES OF DEPOSIT (CD) ADVERTISEMENTS TO ATTRACT CUSTOMERS TO ITS BRANCH OFFICES, AND PERMITTED THESE REPRESENTATIVES TO PLACE FALSE AND MISLEADING ADVERTISEMENTS FOR PRODUCTS THAT DID NOT EXIST, WITH MISLEADING, EXAGGERATED AND UNWARRANTED STATEMENTS. THE FIRM PERMITTED THESE REPRESENTATIVES TO PLACE THE CD ADVERTISEMENTS WITHOUT INCLUDING THE NAME OF THE FIRM AS THE BROKER-DEALER. THE REPRESENTATIVES ADVERTISED THE FDIC-INSURED CDS THAT DID NOT EXIST, WITH ANNUAL PERCENTAGE YIELDS ABOVE MARKET RATES. SOME OF THE REPRESENTATIVES PRIMARILY CATERED TO SENIOR CITIZENS AND USED NEWSPAPER CD ADVERTISEMENTS TO ATTRACT POTENTIAL CUSTOMERS TO THE BRANCH, WHILE THEY INTENDED TO OFFER THE CUSTOMERS DIFFERENT SECURITIES PRODUCTS, FIXED ANNUITIES, AND FIXED INSURANCE PRODUCTS. ANOTHER REPRESENTATIVE USED THE CD ADVERTISEMENTS TO ATTRACT HIS CUSTOMERS TO THE OFFICE TO DISCUSS REAL ESTATE INVESTMENT TRUSTS (REITS), ANNUITIES, OR OTHER COMMISSION-BASED PRODUCTS. ABOUT 95 PERCENT OF THESE CUSTOMERS WERE SENIOR CITIZENS. CERTAIN REGISTERED REPRESENTATIVES OF THE FIRM, DOING BUSINESS AS A COMPANY, SOLD MEMBERSHIP INTERESTS IN AN ENTITY. THE MEMBERSHIP INTERESTS IN THE ENTITY WERE UNREGISTERED SECURITIES, PURPORTEDLY SOLD PURSUANT TO THE EXEMPTION FROM REGISTRATION IN SECTION 506 OF REGULATION D. A NEWSPAPER ARTICLE ON THE REPRESENTATIVES' COMPANY'S WEBSITE ADVERTISED THE ENTITY'S OFFERING BY NAME DURING THE SOLICITATION STAGE AND, THEREFORE, CONSTITUTED A GENERAL SOLICITATION IN CONTRAVENTION OF REGULATION D. THE FIRM NEGLECTED TO SUPERVISE THE ADVERTISING ACTIVITIES OF ITS REGISTERED REPRESENTATIVES AND DID NOT LEARN OF OR INVESTIGATE THE GENERAL SOLICITATION OF THE ENTITY'S OFFERING IN THE REFERENCED NEWSPAPER ARTICLE ON THE COMPANY'S WEBSITE. AS SUCH, THE FIRM FAILED TO REASONABLY SUPERVISE THE ENTITY'S OFFERING BY THE REPRESENTATIVES' COMPANY. THE REGISTERED REPRESENTATIVES AT THE COMPANY RAISED APPROXIMATELY $2.473 MILLION FROM INVESTORS, FOR THE ENTITY. THE FIRM ALLOWED ITS REGISTERED REPRESENTATIVES TO UTILIZE PERSONAL EMAIL ACCOUNTS FOR BUSINESS PURPOSES, BUT REQUIRING THEM TO BLIND CARBON COPY ('BCC') THE DESIGNATED PRINCIPAL OR DESIGNATED EMAIL ADDRESS FOR REVIEW ON ALL OUTGOING COMMUNICATIONS, AND REQUIRING THEM TO FORWARD ALL INCOMING CORRESPONDENCE TO THE DESIGNATED PRINCIPAL. HOWEVER, THE FIRM HAD NO SYSTEM IN PLACE TO PREVENT OR DETECT NONCOMPLIANCE. THUS, THE FIRM'S EMAIL RETENTION AND REVIEW PROCESS WAS INADEQUATE BECAUSE IT WAS NOT REASONABLY DESIGNED TO SUPERVISE EACH REGISTERED REPRESENTATIVE. THE FIRM WILLFULLY VIOLATED SEC RULES WHEN IT DID NOT RETAIN ANY OF ITS REGISTERED REPRESENTATIVES' EMAIL COMMUNICATIONS FOR OVER THREE YEARS IN AN ELECTRONIC FORMAT FROM WHICH THEY WERE EASILY ACCESSIBLE OR READILY DOWNLOADABLE FOR A PERIOD OF AT LEAST TWO YEARS. THE FIRM FAILED TO COMPLY WITH ITS OWN WRITTEN PROCEDURES IN THAT IT FAILED TO MAINTAIN EVIDENCE OF SUPERVISORY REVIEW OF EMPLOYEE EMAILS. Status: Final Sanction Detail: FINE IN THE AMOUNT OF $5,000 WAS PAID BY FIRM IN FULL ON 12/29/2014 FOR COUNT 3 OF THE ENFORCEMENT ACTION. ON COUNT 1 AND 2 THE PANEL FINED THE FIRM $115,000 PLUS COST OF $6,306.48. THE PANEL DECISION WAS APPEALED TO THE NAC. NAC VACATED HEARING PANELS DECISION ON COUNT 1 OF THE ENFORCEMENT ACTION AND REDUCED THE FINE TO $73,000 ON COUNT 2. FIRM FILED APPEAL TO SEC ON 8/26/16. SEC UPHELD THE SANCTIONS AND DECISION ISSUED BY THE NAC WITH REGARDS TO COUNT II OF ENFORCEMENT ACTION AND UPHELD THE FINE OF $73,000 ON 3/29/2017. Summary: ON COUNT III OF THE ACTION, FIRM ENTERED INTO AN AWC ($5,000 FINE) REGARDING FIRMS EMAIL REVIEW SYSTEM PRIOR TO SEPT 2011. ON 7/9/15 THE FIRM FILED AN APPEAL WITH THE NAC. NAC VACATED HEARING PANELS DECISION ON COUNT 1 OF THE ENFORCEMENT ACTION AND REDUCED THE FINE TO $73,000 ON COUNT 2. FIRM FILED APPEAL ON COUNT 2 TO SEC ON 8/26/16. SEC UPHELD THE DECISION OF THE NAC AND THE FINE OF $73,000. DECISION WAS SENT ON 3/29/2017.

Allegations: KCD WAS IN VIOLATION OF NRS 90.310(2), TO WIT, "IT IS UNLAWFUL FOR ANY ISSUER OR ANY BROKER-DEALER LICENSED UNDER THIS CHAPTER TO EMPLOY OR CONTRACT WITH A PERSON AS A SALES REPRESENTATIVE WITHIN THIS STATE UNLESS THE SALES REPRESENTATIVE IS LICENSED OR EXEMPT FROM LICENSING UNDER THIS CHAPTER." KCD PAID TWO SALES REPRESENTATIVES TRANSACTION BASED PAYMENTS ON SECURITIES PRODUCTS WHEN THEY WERE NOT LICENSED IN NEVADA. Status: Final Sanction Detail: ALL FEES ARE PAID IN FULL. Summary: THE VIOLATION OCCURRED AS A RESULT OF A CONTRACT PROVISION THAT WAS CREATED BY A PREVIOUS OWNER OF THE FIRM (NOW DECEASED). FOLLOWING ACQUISITION, THE NEW OWNERS OF THE FIRM WERE UNABLE TO LOCATE ANY REFERENCES TO THE OFFENDING PROVISION AS THE PREVIOUS OWNER HAD RETAINED THE AGREEMENT IN THE REP FILE. BOTH THE FIRM AND THE NEVADA REGISTERED REPRESENTATIVE WERE APPROPRIATELY LICENSED IN NEVADA. THE TWO OTHER REGISTERED REPRESENTATIVES SUBJECT TO THE FINE (LICENSED IN ARIZONA BUT NOT NEVADA) WERE COLLECTING RECRUITING OVERRIDES FROM THE NEVADA LICENSED REGISTERED REPRESENTATIVE. UPON RECEIPT OF NOFIFICATION, THE FIRM REVERSED THE OVERRIDES PAID TO THE RR'S (AND THE FIRM) AND REMITTED $62,445.66 TO THE STATE OF NEVADA. THE AMOUNT ASSESSED TO THE FIRM WAS $20,000 AND $42,445.66 WAS ASSESSED TO THE RR'S THUS RESOLVING THE ISSUE.