Frank Zito

Date:

February 5, 2021

Type of alert:

FINRA AWC  

On December 18, 2020, the Financial Industry Regulatory Authority (FINRA) suspended Frank Zito, a general securities representative formerly associated with Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch) in Jackson Mississippi, to resolve allegations of securities industry violations.

Zito has been associated with three FINRA member firms within the last ten years: Morgan Keegan & Company, Inc. (February 2007 – March 2010), Merrill Lynch (March 2010 – July 2018), and Coker & Palmer (August 2018 – January 2021). Zito was discharged from his association with Merrill Lynch after he allegedly failed to follow firm standards regarding selling away and failing to fully disclose participation in an outside business activity. FINRA Department of Enforcement launched an investigation when Merrill Lynch disclosed these allegations and his termination in a Form U5.

According to the AWC, a Merrill Lynch customer alleged that Zito unsuitably recommended that the customer invest in Madison Timber Properties, LLC (MTP) promissory notes, which were not offered by Merrill Lynch. In April 2018, the SEC filed a complaint against MTP and its owner alleging that MTP was a Ponzi scheme that defrauded $85 million from 150 investors. Upon Zito’s recommendation, his customer invested $5 million in MTP.

In 2011, MTP’s owner had pitched to Zito that the company was raising capital from private investors by issuing promissory notes that repaid principal with 12% interest. The owner claimed that MTP used the money raised from investors to purchase timber from Mississippi landowners which was already “pre-sold” to lumber mills before MTP acquired rights to harvest it for a “significant profit.” The owner also promised to give each investor a signed deed to the timber as security for the investment. In 2011 and 2012, Zito tried to help MTP’s owner find underwriting for a notional private-placement equity offering related to the MTP. Although the effort was unsuccessful, Zito began receiving sporadic payments from MTP as compensation for his efforts through March 2018. The total compensation was almost $130,000.

Zito steadily invested in MTP from July 2012 to April 2018 and recommended the investment to certain customers. Between May 2013 and March 2018, Zito participated in 15 private securities transactions related to MTP without providing prior written notice to the firm, in violation of NASD Rule 3040 and FINRA Rules 3280 and 2010. FINRA Department of Enforcement also alleges in the AWC that Zito violated FINRA Rules 3270 and 2010 for receiving compensation for engaging in this outside business activity.

Without admitting or denying the allegations made against him, Frank Zito consented to a 16-month suspension from associating with any FINRA member in any capacity and a $10,000 fine.

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