June 21, 2017
On June 1, 2017, the Financial Industry Regulatory Authority (FINRA) Department of Enforcement accepted an Order Accepting Offer of Settlement (Offer) submitted by registered representative John Batista Bocchino and Rafael Barela Jacinto to resolve allegations of securities industry violations.
Bocchino and Jacinto were associated with Citigroup Global Markets, Inc. from 2001 to 2009 and 2004 to 2009, respectively. As a result of a joint venture, Bocchino and Jacinto became general securities representatives with Morgan Stanley in June 2009. Both representatives were registered with Morgan Stanley until March 30, 2012, when the firm filed a Form U5 terminating their registration. According to the representatives’ FINRA BrokerCheck reports, Morgan Stanley alleged that they were “engaging in securities transactions for clients within accounts other than their own.”
According to the Offer, Bocchino’s business largely involved transactions in government and sovereign debt bonds issued by South American countries, including Venezuela. FINRA claims that Bocchino, with Jacinto’s assistance, circumvented Morgan Stanley’s policies restricting trading in Venezuelan bonds from at least May 2011 through March 2012. Allegedly, Bocchino was able to trade approximately $190 million in Venezuelan bonds by booking hundreds of unauthorized trades in nominee accounts under the names of well-known U.S. financial institutions and creating firm documents that contained false information.
According to the Offer, the Central Bank of Venezuela created Sistema de Transacciones con Titulos en Moneda Extranjera (SITME; translates to “System of Foreign Currency Transactions”) to facilitate the conversion of its local currency to U.S. dollars through the sales of Venezuelan bonds. The Venezuelan government issued these bonds to select Venezuelan banks. When individuals and entities purchased the bonds, the banks would deposit the bonds with a U.S. broker-dealer for sale. The broker-dealer would then sell the Venezuelan bonds and wire the proceeds, in U.S. dollars, to a third-party financial institution on behalf of the customer.
Morgan Stanley recognized currency conversion and other transactions as presenting regulatory, AML, and reputational risk, thus the firm prohibited Venezuelan bond trades in October 2010. In June 2011, Bocchino requested permission from his managers to sell Venezuelan bonds for foreign customers without obtaining proof that the bonds had been purchased with U.S. dollars. Morgan Stanley denied this request. Based on the foregoing, Bocchino and Jacinto were in violation of NASD Rule 3110 and FINRA Rules 4511 and 2010.
Jacinto functioned as Bocchino’s primary sales assistant from June 2009 through March 2012, during the time of the activities in question. Jacinto performed various tasks for Bocchino including opening new accounts by completing and submitting new account documents, completing order tickers to initiate securities trades, and acting as the liaison between Bocchino and the firm’s “back office” for the purposes of settling trades.
Without admitting or denying the allegations of the Complaint, Bocchino and Jacinto agree to the sanctions set forth in the Offer. Jacinto is suspended from association with any FINRA member in any capacity for one year and fined $10,000. Bocchino is barred from association with any FINRA member in any capacity.