Richard Campanella had never been named as a respondent in any disciplinary proceeding by any securities regulator at any time in his 25-year career. While serving as COO and COO, and later as CEO, with vFinance Investments, Mr. Campanella's perfect record came to an abrupt end.
Alleged Violations. From 2003 through 2006, vFinance Investments failed to preserve and produce the customer correspondence of one of its RRs in willful violation of Section 17(a) of the Exchange Act and Rules 17a-4. RR Nicholas Thompson willfully aided and abetted and caused vFinance's violations by corresponding with customers using his personal email account and instant messaging, refusing to produce records when requested by the SEC Division of Enforcement, and destroying records on his personal computer. Richard Campanella willfully aided and abetted and caused vFinance's violations by failing to restrain Thompson's use of personal email and IM for customer communication, failing to design and enforce procedures to capture Thompson's communications, and failing to respond promptly to the Division's records requests. Second-tier civil penalties of $100K and $30K were levied against vFinance and Campanella.
Thompson, the RR From Hell. Thompson was an RR in vFinance's Flemington, NJ office. He was the only vFinance market maker located outside of Boca Raton, where the firm was based. Campanella operated out of Boca Raton. While vFinance had a policy that only its internal email system may be used for business purposes, Thompson used a private web-based email account from the domain blast.net to communicate with both vFinance employees and clients. Yet, Campanella was responsible for monitoring the firm's e-communications and knew that Thompson used this outside account - as described below, he repeatedly tried to stop this violative activity. Without success.
Campanella's Efforts Not Enough, Not Sufficient. While Campanella ultimately permitted Thompson to send and receive IMs, but for internal purposes, only, he did not monitor Thompson's compliance. Campanella received emails on numerous occasions from Thompson that were written on blast.net, as did one of Campanella's branch auditors, Patrick Hayes. Despite repeated warnings that Campanella would fine Thompson, Thompson continued this violative activity without ever being fined or stopped. Hayes conducted branch audits in 2003, 2004 and 2005 - some unannounced - and, among other things, noted that Thompson had little contact with retail customers via the firm's internal email system. This should have raised red flags to Hayes and Campanella - i.e., the absence of customer contact at an established branch such as Flemington, was unusual. Yet, neither Hayes nor Campanella acted on these signals. Perhaps more critical is that, at no time did anyone at vFinance ever ask Hayes to look for blast.net email accounts at Thomson's office.
SEC Investigation Opens Pandora's Box. The problem blew up when the SEC began an investigation in July 2005 regarding an investigation into vFinance's market making in a stock handled by Thompson. Over the course of many months, Thompson effectively stonewalled SEC record requests. While it was obvious to Campanella that Thompson would not cooperate, Campanella waited almost 6 months after the SEC's initial request before threatening Thompson with termination. It was 18 months later that Campanella finally went to the Flemington office to collect the relevant documents - long after Thompson had resigned. Ultimately, Thompson destroyed whatever relevant document he may have created in his personal blast.net email account for vFinance business purposes.
The SEC concluded that Campanella's inaction, from as far back as 2004, substantially assisted Thompson's improper use of his personal email account for business purposes and it substantially assisted the destruction by Thompson of documents that vFinance was required to obtain. In the end, the non-compliant RR/trader played the CCO all he was worth. How about a $30K fine? [Admin Proceeding File 3-12918, 11/7]
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