Michael J. Blayney, Esq.

-:- UnitedWestem Bank

November 4,2010
Page 2
bee: D. W. Dwyer
K. Corcoran.
P. A. Gerbiek
O. A. Scott
N.J.Oyer
K. B. Swanson
S. J. Harris
J. A. Hendriksen
C. T. Coon
3009
TabC
Exhibit 94 P
See Tab C, Exhibits 94 G, 94 H, 94 I, 94 -I,
94 M, and 94 N
3010
TabC
Exhibit 94 Q .
3011
Paul Hastings
Atlanta
Beijing
Brussels
Chicago
Frankfurt
Hong Kong
London
Los Angeles
Milan
New York
Orange County
Palo Alto
Paris
San Diego
San Francisco
Shanghai
Tokyo
Washington, DC
Paul, Hastings, Janofsky & Walker lLP
875 15th Street, N.w.
Washington, DC 20005
telephone 202-551-1700- facsimile 202-55H705 www.pauJhaslings.com
;' "" , - .. : ~
(202) 551-1829
lawrencekaplan@paulhastings.com
November 17,2010
NOV 1 a 2010
L-. ..
CONFIDENTIAL THEA TMENT REQUESTED
1
VIA HAND DELIVERY AND UPS NEXT DAY AIR
Applications Filing Room
Office of Thrift Supervision
1700 G Street, N.W.
Washington, D.C. 20552
Philip A. Gerbick
Regional Director
Office of Thrift Supervision
Western Regional Office
225 E. John Carpenter Freeway, Suite 500
Irving, TX 75062-2326
Kristie K Elmquist
Acting Regional Director
Federal Deposit Insurance Corporation
1601 Bryan Street
Dallas, TX 75201
Re: United Western Bank - Notice Pursuant to 12 U.S.c. 1828(m) 12 C.F.R.
362.16 and 12 C.F.R. 591.11 for an acquisition and conduct of a new activity
in an operating subsidiary
Gendemen and Ladies:
On behalf of United Western Bank (the "Bank" or "VWB"), in response to a ~ operating
subsidiary application to acquire and conduct the operations of Legent Clearing, LLC,
enclosed please find responses to the additional information request dated October 27,
2010 letter from Mr. Bowman W .. Lee of the Office of Thrift Supervision's West Regional
Office. The responses are provided in two confidential volumes.
1 This letter and each volume herewith contains confidential business information of United Western Bank, its holding.
company United Western Bancorp, Inc. and Legent Clearing, LLC that is not in the public domain. This letter is being
provided to the federal bank regulators of United Western Bank in their supervisory capacity over the Bank and
therefore should be granted confidential treatment pursuant to the confidential commercial information and bank
examination and supervision exemptions to the Freedom of Information Act Accordingly, we request, pursuant to 5
U.S.c. 552(b)(4) and (b)(8), confidential treatment of this letter Please notify us if anyone submits a Freedom of
Information Act request for a copy of this letter.
3012
; -.... :
I ::
Paul Hastings
Office of Thrift Supervision
Federal Deposit Insurance Corporation

Page 2
The acquisition of Legent Clearing is an integral cotnponent to the recapitalization
transaction that is currendy in process, which tnust be cotnpleted by December 31, 2010.
Accordingly, we request your protnpt attention to these responses and to processing the
application.
If you have any questions regarding this application or the recapitalization transaction,
please prompdy contact the undersigned at 202-551-1829 or
lawrencekaplan@paulhastings.cotn
wrence D. Kaplan
for PAUL, HASTINGS, JmOFSKY & WALKERLLP
Enclosures
cc: Frances Augello, Esq.
Karen Marcotte
OTS - Washington
Bowman Lee
OTS-Daly City
Joseph Meade
FDIC-Dallas
Theodore J. Abariotes
United Western Bank
3013
Additional Information Filing Number 2
to
Operating Subsidiary. Application
f ",
filed by
.' ..
" . NOV 18 2010
'U nited Western Bank
Denver Colorado
to acquire
Legent Clearing, LLC
,.
.11....... .:.; ....
Confidential Volume 1 of 2
Name, Telephone Number (including area code) and Address of an
Individual to Whom Communications are to be Sent:
Theodore J. Abariotes
. General Counsel
United Western Bank
700 17th Street, Suite 2100
Denver, Colorado 80202
Phone - (720) 932-4216
Fax .. (303) 390-0952
With a copy to:
Lawrence D. Kaplan
Paul, Hastings, Janofsky & Walker, LLP
875 15th Street, NW
Washington, DC 20005
Phone: 202-551-1829
Fax: 202-551-0229
....'.,'
E-mail: TAbariotes@uwbank.com E-mail: lawrencekaplan@paulhastings.com
3014
.. u
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j
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Additional information responses to OTS letter dated October 27, 2010
(provided at Exhibit 1).
Capitalized terms used herein but not defined in this letter have the meanings ascribed to
them in the previously submitted Notice. The questions and comments. from Mr. Lee's
letter are reproduced below in bold and italicized print:
1. Please confirm our understanding that Legent is a ''financial institution" for Bank
SecrefY Act ("BSA '') purposes, and that PINRA is Legent's functional regulator for BSA
purposes.
The Bank. hereby confirms that Legent Cleanng, LLC ("Legent") is a "financial
institution" for BSA purposes. In. addition, FINRA is Legent's functional regulator for
BSA purposes.
2. Submit a copy ofLegent's current comprehensive BSA and anti-money laundering
("AML ~ ' ) complianceprogram.
A copy of Legent's cuttent AML compliance program is included as Confidential Exhibit
.2 to this submission.
J. Indicate whether Legent will continue to operate as a separate 'Jinancial institution"
for BSA purposes after the. proposed acquisition. If so, specij!y how the Bank's board of
directors and management will oversee Legent's BSA/ AML compliance program. If you
intend to consolidate any aspect(s) ofLegent's and the Bank's BSA/AML compliance
programs, please describe the nature of such co.nsolldation.
Legent will not continue to operate as a separate "financial institution" for BSA purposes
after the acquisition (see response to Comment No.4 below).
4. IfLegent will not continue to operate as a separate 'Jinancial institution "for BSA
purposes, submit a revised BSA/ AML program for the Bank that includes the Legent
operations. .
.Although Legent will operate as a separate entity for business purposes, ids the intent of
United Western Bank. (the "Bank") to incorporate Legent within the current United
Western Bancorp, Inc. (the parent company of the Bank, the "Company") approved
Enterprise-Wide Bank. Secrecy Act and Anti-Money Laundering Program (the
"BSA/ AML Program") because both the Bank and Legent are subject to the Bank.
Secrecy Act and its implementing regulations. The BSA/ AML Program has been
repeatedly reviewed and accepted by the OTSduring recent regularly scheduled exams,
including the current on-going exam. A revised BSA/ AML Program, which will include
Legent's operations, will be presented to the Bank's and the Company's Board of
Directors once the acquisition has been completed. Attached hereto as Confidential
Exhibit 4, is the current BSA/ AML Program which applies to the Bank.. A copy of the
301ONFIDENTIAL
revised BSA/ AML Program can be made available to the OTS after final Board approval
of such revised BSAj AML Program and the closing of the Legent acquisition.
J. Confidential Exhibit 4 Specified Litigation Matters - please provide a brief
description as to the nature and charges of the 1 J cases listed, including the damages
claimed and Legent's likelY potential dollar exposure.
Please be advised that there are only four remaining pending cases in which Legent is a
party and all of the four cases relate to the claims made in the Enterprise Complaint as
discussed more fully below. Section 3.13 of the Purchase Agreement requires that
Schedule 3.13 list all litigation matters in which Legent or its ditectors, officers or
employees have been parties to the date of Legent's inception. Pursuant to the OTS's
request, below is a brief description as to the nature and charges of the thirteen cases
listed on Schedule 3.13, including damages claimed and Legent's likely dollar exposure
(provided only with respect to the pending litigation matters).
Pending Legent Litigation Matters:
1. Phillip Stem. Receiver for Enterprise Trust Company v. Legent Clearitig LLC, Case
No. 09 CV 794 in the U.S. District Court for the Northern District of Illinois (Eastern
Div.) (the "Enterprise Complaint").2 The Enterprise Complaint was filed on February 9,
2009. Enterprise Trust Company ("Enterprise") established a securities account for the
purpose of trading securities and derivative contracts with TradeRight Securities, Inc.
("TradeRight"), who was an introducing broker-dealer of Legent and cleared transactions
through Legent. The allegations against Legent in the Enterprise Complaint stem from
certain bad acts of two individuals involved with Enterprise and TradeRight. These
individuals are also the subject of an on-going SEC fraud investigation.
The plaintiff in the Enterprise Complaint, who was appointed as the receiver for
Enterprise on March 5, 2008, alleges that these two individuals improperly used the assets
of Enterprise custodial customers to engage in highly speculative securities trading
strategies that included short selling, single stock futures, and options in a margin account
at Legent. The plaintiff alleges that Legent knew that some of these custodiai accounts
were not to be traded anq that Legent knowingly aided and abetted Enterprise in making
2 Includes various related cases filed from October 2008 throughJanuary 2009 by various plaintiffs who
were clients of Enterprise Trust Company, including the Las Vegas Enterprise Related Claims.
Messrs. Gibson, Kirschman and Duran-all former Enterprise customers-filed FINRA arbitration matters
in 2008 against Legent (the "Las Vegas Enterprise Claims"). Mr. Gibson alleged that he lost $360,000 due to
the fraudulent activities related to the Enterprise margined trading. Mr. Kirschman claims losses of
approximately $1 million. Mr. Duran claims he and ten other Enterprise customers who joined in his
FINRA arbitration claim lost approximately $2.6 million. According to Legent'scounsel, one attomey
represented all these claimants and Legent contested the arbitrability of the Las Vegas Claims, arguing that
the Enterprise customers were not customers of Legent-they were customers of TradeRight and thus
Legent should not be subject to the FINRA arbitration requirement. Legent was successful in arguing
against having to arbitrate the Las Vegas Enterprise Claims and the Las Vegas Enterprise Claims were all
dismissed without prejudice. Legent's counsel has reported that such claims will not likely be filed again due
to the fact that these claimants can be part of any award that may result from the Enterprise Complaint
discussed above.
CONFIDENTIAL
3016
4
7. GWS Technologies vs. Legent Clearing and others (US Central District Court
California - August 2008). Plaintiff clalmed that Legent and others conspired to depress
the value of its stock. Legent's involvement was limited to honoring a client's request to
transfer his position to anotl;1er firm where the stock was sold. The matter was dismissed
with prejudice on July 8, 2010.
8. EZ Banc Corporation vs. Legent Clearing (US District Court, Southern Florida -
February 2008). Plaintiff filed. an action against Legent for loss of value and inability to
trade a security when Legent honored an account transfer reclaim and delivered a security
position back to the former broker dealer due to an agent stop transfer on the position
that had been delivered to Legent. The matter was eventually dismissed with prejudice.
9. Penson Financial Services vs. Jesup Lamont Securities Corp & Legent Clearing LLC.
This FINRA arbitration action stemmed from a dispute between Penson and Jesup
. Lamont Securities (a former clearing client with Penson). There were several claims and
counter claims between the two entities. The plaintiff alleged that Legent interfered on an
outstanding contract for clearing services between Penson and Jesup. On March 5,2010,
the FINRA arbitration panel ruled that Jesup Lamont was liable to Penson for .
approximately $24,000. Legent was not found liable to the claimant.
6. Exhibit C, Proceedings by Govemmental or Regulatory Entities - please provide
copies of: (i) all regulatory actions, nott:ces, and settlements, including the two
NASD /FINRA Letters of Acceptance, Waiver, and Consent; and (i') all correspondence
between Legent and FINRA in connemon with any acti,ons, 'including FINRA Case
No. 2007007lll001.
A copy of all regulatory actions, notices and settlements since 2006, and all
correspondence between Legent and FINRA, including FINRA Case No. 2007007133001
is included as Confidential Exhibit 6 to this submission.
7. Exhibit C, Schedule l.18 -provide a copyof"Whittington's Claim of Discrimination
and Legent's Positt:on Statement" which is referenced as an attachment to Schedule l.18.
Attached hereto as Confidential Exhibit 7 is a copy of ' 'Whittington's Claim of
Discrimination and Legent's Position Statement." Also, included in Confidential Exhibit
1, is a copy of a Dismissal and Notice of Rights dated September 29, 2010 (the
"Dismissal") from the U.S. Equal Employment Opportunity Commission (the "EEOC")
on this matter. In the Dismissal, the EEOC determined that, based upon its investigation,
it was unable to conclude that the information obtained from the complainant establishes
violations of statutes. The Dismissal provided in Confidential Exhibit 7 is also being
provided in response to Comment No. 23 to this submission since the Seller provided this
written disclosed in connection with the Agteement .
. CONFIDENTIAL
3020
8
The Bank's determination is based on the fact that Legent hired David Jarvis as its
General Counsel and Executive Vice President in December 2009.
Mr. Jarvis is a cum laude graduate of the University of Michigan and earned his Juris
Doctorate in 1990 from the University of Detroit School of Law where he was an
associate editor of the National Jewish Law Review. Prior to joining Legent, Mr. Jarvis
was Executive Vice President and General Counsel of Gunn Allen Holdings, Inc., the
parent of a diversified financial services firm. Prior to Gunn Allen, Mr. Jarvis spent over
five years as a Senior Vice President ofWachovia Securities (n/k/a Wells Fargo Advisors)
where he was the de facto General Counsel to Wachovia Securities Financial Network and
additionally supported First Clearing LLC, Wachovia's dearing firm. Mr. Jarvis began his
legal career with law firms in Michigan and New York, where his practice focused, almost
in entirely, on securities litigation, securities regulation and securities arbitration. Mr. Jarvis
is a frequent author, speaker and commentator on matters impacting the financial services
industry.
Mr.Jarvis has been instrumental in ensuring that Legent's command and control
processes, as well as its policies and procedures, are being followed. Some of Legent's
relevant command and controls processes are described below:
. Under Legent's current Designation of Supervisors written procedures:
1. Legent has an Operating Committee comprised of the CEO, President, CCO, CFO
and Financial Operations Principal (FINOP), SVP - Operations, the VP of Human
Resources and General Counsel; such committee coordinates the activities of the
designated supervisors. In order to monitor the activity of Legent's correspondent firms,
various departments within Legent review periodic reports, including, but not limited to
trading, settlement, and stock reconciliation and compliance reports.
2. The SVP-Operations and EVP-Compliance supervise all registered persons in the
Brokerage Clearance/Operations. The President supervises the Client Service area in the
home office location and the Chicago office. All registered persons in the Accounting
and Financial areas in the home office location are supervised by the CFO. The EVP-
Compliance supervises all other registered persons in the home office location, and the
SVP-Operations supervise the New York City office. The SVP-Operations, EVP-
Compliance and CFO "will be properly qualified" to provide this supervision. A Series 24
and at least two years of general supervision experience will evidence the qualifications.
3. The EVP-Compliance and the SVP Operations annually review the supervisory
system and procedures and make recommendations to the President regarding any
modifications or improvements needed to the system of supervision.
4. The Chief Compliance Officer is designated to establish, maintain, and enforce a
system of supervisory control policies and procedures in compliance with requirements of
Rule 3012 as it relates to Legent's business. In the event Legent employs registered
representatives in the future, it will comply with the requirements of Rule 3012 regarding
CONFIDENTIAL
3023
11
independent oversight of a producing manager's account activity. This will also include
any branch inspection as required under R ~ e 3010 ( c ) ~
5. Compliance with FINRA RUle 3130 is the responsibility of the CEO, coordinated
with the Chief Compliance Officer
Legent's Litigation Policies and Procedures:
1. Legent's litigation policies and procedures include a policy that its General Counsel
. will review all correspondent contracts and customer agreements prior to their-execution.
2. In addition, Legenthas a policy that all litigation will be managed by Legent's General .
Counsel and the General Counsel will be involved in any correspondent and/or customer
disputes and will work with the Chief Compliance Officer and the Chief Operating
Officer on any such disputes .
. 11. Exhibit E, Memorandum to Independent Directors -provide a copy of the
memorandum referenced in page .I that identifies and discusses the .nsks specific to
securitz'es clearing companz'es such as Legent.
A copy of the Memorandum requested is included as Confidential Exhibit 11 to this
subinission.
12. Exhibt't F, Fairness Opinz'on Materials - the materials submitted under thz's exhibt't
is apparently a summary of the presentation made to the (z'ndependent) board of
directors. Please provti1e a copy of the actual1llritten opz'nion itselfprepared by Keefe,
Bruyette & Woodr that, among other thz'ngs, provides thefinal conclusion as to the
fairness of the proposed transaction from a jinancial1!0t.nt of view.
A copy of the Fairness Opinion from Keefe, Bruyette & Woods ("KBW'') to the Special
Committee dated June 3, 2010 is included as Confidential Exhibit 12 to this submission.
We had requested all KBW materials provided to the Special Committee of the Board of
Directors and presumed that the information that we submitted in our previous response
was complete.
1 J. Exhibz't G, Fz'nancial Projections - it is stated that "current expectations are for a
$200 mz'llion capital raise at the minimum. " Please discuss the circumstances that have
resulted in this more favorable assessment from the initt'al base case $12.1 millt'on capt'tal
raise.
Management determined that, based on the economic and financial requirements of both
the Company and the Bank, the primary objective of the Company and the Bank is to
raise sufficient capital for the Bank to achieve and maintain the capital ratios in excess of
those mandated under the Bank's Cease and Desist Order (8% core and 12% total risk
based ratio) and to provide additional working capital to the Company and the Bank
prospectively for growth. The $200 million dollar capital raise. contemplated under the
recendy announced Investment Agreement will allow the Bank to de-risk certain non-
CONFIDENTIAL
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agency mortgaged-backed securities (such securities to be acquired by the Company
pursuant to a 1W A transaction) and allow the Company to provide additional capital to
the Bank, thereby ensuring the Bank is a well capitalized institution under the applicable
regulations and under the Bank's Cease and Desist Order. Upon completion of the
transactions contemplated by the Investment Agreement, including the Bank's acquisition
of Legent, the pro forma capital ratios of the Bank are 8.40% core and 16.3% total risk
based. Because the Bank has de-risked its balance sheet by removing the direct credit
substitute non-agency mortgaged-backed securities, the Bank is not subject to erosion of
its newly infused capital. The Company's financial advisor, Goldman Sachs & Company,
has indicated that the capital markets will support this level of capital raise for the
Company and this is substantiated by the anchor investors' interest in the private
placement offering and further substantiated by the strong interests of accredited
investors in such transaction.
14. Assuming no injection of additional capital to the Bank, provide a proforma
projection of the Bank's peA capital ratios immediately following the acquist'tion.
If the Company does not complete a substantial capital raise, the Bank will not acquire
Legent Clearing. Thus, this question is moot.
Assuming, however, the scenario you requested in this Comment No. 14, the Bank's PCA
capital ratios immediately following the acquisition would be 5.1 % core ratio, 5.1 % Tier 1
risk based ratio and 6.4% total risk based ratio. For this scenario we assumed that the
Legent acquisition occurs on December 31, 2010.
While we are being responsive to your request, please be advised that it is management's
opinion that absent the injection of additional capital into the Bank that is contemplated
in conjunction with Company $200 million capital raise, the Bank would be
undercapitalized and it is unlikely that the Bank would be able to proceed with the
acquisition of Legent.
1f. Exhibt'ts G & H - clarzJ!y the date of acquisition assumedfor the financial
projections submitted under both Exhibt"ts G & H. Aside from the three assumptions
specifically It'sted under Exhibit H (z:e., no capital raise, no TradeKing, no new
correspondents), are the bases and assumptions ofthefinancial statements in both
Exhibits G & H otherwise the same? What is the relationship between the financial
statements shown in Exhibit G and those shown in Exhibit H?
The assumed acquisition date of Legent was in the fourth quarter 2010 in the financial
projections provided in both Exhibits' G & H of our comment response letter dated
October 8, 2010. The basis and assumptions defer between the financial statements in
both Exhibits G & H - They are not otherwise the same and are not comparable
Exhibit G financial statements were updated to reflect actual performance through the
second quarter 2010. In addition, the Exhibit G financial statements also reflected a de-
risking assumption wherein the Bank would eliminate its non-agency mortgaged-backed
securities and incur a loss on sale of approximately $65 million.
CONFIDENTIAL
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The Exhibit H financial statements were the detailed support statements underlying the
"Worst Case" scenario that was provided to the Board as part of the memorandum dated
May 21, 201O-a scenario that was generated based on actual first quarter information.
Management thought that you were requesting these detailed statements.
We are sorry fotany confusion this might have caused in your review.
16. Comment 7 - the response makes reference to Schedule 3.4 of the Purchase
Agreement, 1IIhich had not been provided 1IIith either submission. Please provide a c,opy of
Schedule 3.4 as 1IIeli as the updated status of all required governmental/regulatory
approvals, consents, or notifications in connection with the proposed transaction,
includingfor filings made 1IIith the FDIC, SEC, and FINRA.
Attached hereto as Confidential Exhibit 16 please find the Disclosure Schedules
requested. Confidential Exhibit 16 is also being provided in response to Comment No. 23.
FINRA must review and approve the purchase and sale of the Units contemplated in the
Purchase Agreement. Legent filed their initial revised application with FINRA on
August 6,2010. The review is ongoing and approval is pending.
The Securities and Exchange Commission ("SEC") must approve the repayment of
subordinated indebtedness and relited release of collateral contemplated by Section 6.2 of
the Purchase Agreement. Legent has discussed the matter with FINRA and believes that a
letter outlining the facts and circumstances will be prepared and filed with the SEC at the
appropriate time. Legent has informed the Bank that the turnaround for the approval
would take approximately two weeks.
Legent Clearing will be required to make the following notice filings after consummation
of the purchase and sale of the Units contemplated in the Purchase Agreement:
a) All 50 states of the United States;
b) The District of Columbia;
c) Puerto Rico; .
d) United States Securities and Exchange Commission;
e) Municipal Securities Rulemaking Board;
f) Depository Trust & Ciearing Corporation;
g) National Securities Clearing Corporation;
h) Options Clearing Corporation;
i) BATS Exchange;
j) Boston Options Exchange;
k) Chicago Stock Exchange;
1) International Securities Exchange; and
m) NYSE Arca.
CONFIDENTIAL
3026
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17. Comment 8 - provt,'de it copy of the (draft) resource/ servU:e sharing agreement
. proposed to be enteredt,'nto. by the Bank and Legent followt,'ng the acquu,:ti,on.
Upon indication by the OTS and the FDIC of their approval of Legent as an operating
subsidiary of the Bank, the Bank shall furnish such resource/ service sharing agreement to
the OTS.
18. Comment 20 - our comment may not have been suffic':ently clear. Please
dz'scuss whether the Bank would sti,11 const,'der the acquut,'ti,on ofLegent based upon other
strategz& and/or economu merits even if # 1I1ere ultt,'mately determt,'ned that the assodated
depos':ts 1I10uld be classified as brokered depost,'ts for FDIC regulatory purposes.
Yes-
The acquisition of Legent provides access to lower cost client deposits and provides a
more diverse liquidity source for the Bank; a new fee revenue source for the Bank and
potential increase to the Bank traditional fee sources to a new customer base; provides the
Bank with a new, low risk, lending product line (securities margin lending) that diversifies
the Bank's . loan portfolio mix; the acquisition is expected to be accretive to the Bank
earnings within 12 months from closing; the clearing operations provides a highly scalable
business with material organic and acquisition based growth opportunities; and increases
synergies for the Bank's on-line products and allows for potential material Bank product-
line expansion.
19. Comment 21 -please ducuss h01l1 the potentz'al acquut,'ti,on ofLegent by the Bank
origz'nally came under const,'derati,on. DUJ the Bank t,'nt,'ti,ally approach the Sellers or v':ce
versa?
The answer to who first suggested that Legent Clearing should be acquired by the Bank is
now lost in the mists of time as Mr. Gibson and Mr. Duques have worked together for
well over five years as set forth below. We can'only suggest that, due to the close working
relationship the two men developed, someone of them, at sometime, remarked that the
combination of the two companies would be good for both companies and their
.
A Brief History
Guy A. Gibson acquired the securities clearing division of Kirkpatrick Petits, a division of
Mutual of Omaha, in 2002, This company became Legent. Mr. Gibson acquired Legent
with a view to controlling the customer idle cash balances inside an FDIC insured
depository institution because the low cost, stable deposits associated with securities
clearing customers has proven repeatedly, in many instances, to be very efficient for banks
and savings banks.
In 2005, prior to the time Mr. Gibson could arrange to acquire an insured institution or
else charter a de novo institution, he elected to sell Legent to Henry C. Duques, the former
Chairman of the Board of the First Data companies. Mr. Gibson was focused at that point
on leading the redirection of the Bank and needed to put other distractions aside.
CONFIDENTIAL
3027
15
Mr. Gibson completed the sale of Legent to Legent Group, ILC, a company controlled
by Mr. Duques, but Mr. Gibson's controlled holding company, J;low known as G2
Holding Company, retained an approximately 9.5% interest in Legent Group post sale and
Mr. Gibson continued as a director of Legent Group until March 2010. In March 2010,
Mr. Gibson resigned from his board position at Legent Group and sold all of G2's
remaining interest in Legent Group to Mr. Duques. .
In addition, in 2005, Mr. G i b ~ o n , through G2, and Mr. Duques, both personally and
through Legent Group, invested in Kane Reid Securities, Inc. (d/b/a TradeKing), an on-
line secui:ities firm. Both men have held board seats on the TradeKing board since 2005.
Mr. Gibson and Mr. Duques also socialize frequently having dinner and visiting each
. other frequently.
So, when and who first spoke of the acquisition of Legent by the Bank is difficult to
ascertain, but it could have come up at any time over the past five and one-half years.
20. It is apparentfrom the proposal and projections that the amount of Bank deposits
placed through Legent will increase significantly after the acquisition. Expla':n how and
where Legent will obtain the substantial amount of new funds.
Legent intends to grow its current balances of available client credit balances (a.k.a. Bank
deposits) through a combination of both: 1) new correspondent contract additions; and 2)
increased client credit balances from organic growth in the business of its existing
correspondent customers. Our projections show that the ratio of new correspondents ap.d
. current existing available client credit balances to total available client credit balances are
split approximately 70% and 30%, respectively by the end of2013. We expect more
significant growth in available client credit balances from new added business.
In support of this assumption, we have had ntimerous discussions with Legent CEO,
Chris Frankel, and Legent's sales personnel. We continue to periodically review and
monitor Legent confidential correspondent sales pipeline reports.
We recognized early in our due diligence process and we forecasted this within our
projections that the loss of TradeKing business would significantly decrease the client
credit balances available for deposit at the Bank. Subsequent sales efforts and meetings
that Legent's CEO and'sales personnel have had recently makes Bank Management
confident that our projected total available client credit balances are achievable. For
example, Legent recently signed a new correspondent client that will potentially provide
available credit balances that more than replace the loss of the TradeKing balances. This
correspondent is currently processing only a portion ofits business through Legent and
has indicated to Mr. Frankel that they are willing to move all their business to Legent post
closing of the announced transaction. This is a common theme and position expressed by
numerous new correspondent prospects that Legent is now eager to market its financial
strengths and product services once it is a part of the Bank.
CONFIDENTIAL
3028
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22. Discusf the competition that Legentfacesfrom Penson World1llide, Inc., including the
future competition for new business/clients. Aside from TradeKing, is Legent lz'kely to
lose other clients to Penson Worldwide, Inc.?
Traditionally Penson has serviced broker dealer clients that are active, high volume traders .
which require low pricing and less depth of services. Legent has traditionally serviced full
service brokerage firms that require a broad spectrum of services and do not require bare
bones pricing. Tradeking left Legent primarily because the pricing Tradeking
demanded resulted in a negative margin for Legent.As such TradeKing and Legent could
not come to an agreement on a pricing structure that worked for both firms. Tradeking's
business is unique in that they are an online deep discount brokerage firm that relied on
Legent and Legent's core processor to facilitate TradeKing's client facing system. Legent.
has no other clients that fk this profile. Legent does not anticipate losing other clients to
Penson.. Instead, Legent believes just the opposite will occur, in that Penson will lose '
clients to Legent as they attempt to combine the Ridge Clearing (full service) clients into
Penson.
21. Purchase Agreement -please provide a copy of: (i) all Disclosure Schedules referenced
in the Agreement, as delivered at the signing of the Agreement, as 1IIeil as any subsequent
supplements or amendments thereto; and (ii) any written disclosures provided by the
Bank or its parent company to the Sellers in connection 1IIith the Agreement.
Copies of the Disclosure Schedules referenced in the Purchase Agreement are attached
hereto as Confidential Exhibit 23 to this submission. At this time, there are no written
disclosures from the Bank or the Company to the Sellers in connection with the
Agreement. Under section 4 and section 5 of the Purchase Agreement, the Bank and the
Company will provide certain representations and warranties to the Seller which are
standard corporate disclosures for a transaction of this type.
24. Purchase Agreement- clarify the identif:Y and abilif:Y of the sellingpart':es (e.g.,
Henry C. Duques personally, the shell parent company, Legent Group, LLC, etc.) that
111':11 stand .beh':nd the warranties, representations, and obl':gations of the Seller.
Subject to the terms and conditions of Article 7 of the Purchase Agreement, Legent
Group and Henry C. Duques ("Duques"), jointly and severally, agree to indemnify and
hold harmless the Bank and its affiliates from and against all Claims (as defined in the
Purchase Agreement) relating to the following (the "Special Indemnity Claims"):
(a) the inaccuracy or breach of any representation or warranty of Sellers
contained in the Fundamental Reps (those representations and warranties
set forth in Sections 3.1 ["Legent Clearing"], 3.2 ["Sellers'1, 3.3 ["Title"]
and 3.7(f) ["Tax Classification'1);
(b) the breach of any covenant of Legent Group or Duques with respect to
the non-compete and confidentiality their obligations;
(c) any claim by a person purporting to be the holder of an,y units or other
securities in Legent;
CONFIDENTIAL
3031
19
(d) any fines, penalties, or costs resulting from a disciplinary action,
enforcement action or similar proceedings of FINRA or similar authority
which occurred prior to the Closing ("Regulatory Claims"); and
(e) any matter covered by a Release (as defined in the Purchase Agreement).
Legent Group agrees to also indemnify the Bank and its affiliates from any Claims relating
to:
(a) any breach of any. representation and warranty of the Sellers;
(b) any Litigation set forth on Schedule 3.13 or any Litigation required to be
submitted on Schedule 3.13 as of the date of the Purchase Agreement or
any Regulatory Claims; and
(c) any fines, penalties, interest, costs resulting from any fines assessed by
the Internal Revenue Code against Legent.
Based upon Mr. Duques' financial inforniation which he has provided to t4e Bank, the
Bank has determined that Mr. Duques can stand behind the Special Indemnity Claims.
Further, we believe that the Seller may become a shell organization from a capital
perspective shortly following the acquisition of Legent by the Bank. It is for this reason
that the Escrow Agreement was developed and will be funded at the levels specified
above. Consequently, this question is largely inapplicable.
CONFIDENTIAL
3032
20
TabC .
. J
Exhibit 94 Q (1)

3033
3034
)
J
Office of .,hrift Supervision
Department of the Treasury Western Region,
, , Pacific Plaza, 200 I Junipero Serra Boulevard, Suite 650, Daly City, CA 94014-3897 Daly City Area Office
, P.O. Box 7165, Francisco, CA 94120-7165 Telephone: (650) 746-7000 Fax: (650) 746-7001
October 27, 2010
Michael J. Blayney, Esq.
Hunton & Williams LLP
Fountain Place
,1445 Ross Avenue, Suite 3700
, Dallas, TX 75202 .. 2799
Dear Mr.
OTSNo. 06679
, NATS,No. R4-2010-0228
This is concerning the Application you filed on behalf of United Western Bank (''Ba.nl<'') our
Office on August 10, 2010, requesting permission to: (1) acquire Legent Clearing, LLC
("Legent"); and (2) conduct new activities tbroughan operating subsidiary. We have also
received your submission dated October 8, 2010, as.filed in our Office on October 12, 2010, in
response to our comment letter issued September 9; 2010. Based upon our review of the
'materials submitted, we ask that you respond to the following further comments:
1. Please confirm. our understa11.c;ling that Legent is a institution" for Bank Secrecy
Act ("BSA") purposes, and that FINRA is Legent's functional regulator for BSA purposes. '
, 2,' Submit a coPy of Lege:n.t's current comprehenSIve BSA and anti-money laundering (" AML j

3. Indicate whether Legent will continue to operate as a "financial institution" for BSA
purposes after the proposed acquisition. If so, specify how the Bank's board of directors and
- management will oversee Legent's BSAlAML compliance program. If you intend to
consolidate any aspect(s) of Legent's and the Bank's BSAlAML compliance programs,
. please describe the nature of such consolidation .
. 4. If Legent will not continue to operate as a separate "financial institution" for B8A purposes,
submit a revised BSAlAML program for the Bank that includes ti?-e Legent operations.
5. Exhibit C, Specified Litigation Matters - please provide a brief de.scription as to the nature
and charges of the 13, cases listed, including the damages claimed and Legent's likely
potential dollar exposure. . .
3035
Michael J. Blayney, Esq. - United Bank
October 27; 2010
Page 2
6. Exhibit C, Proceedings by Governmental or Regulatory Entities - please provide copies of:
(i) all regulatory actions, notices, and including the two NASDIFINRA Letters
of Acceptance, Waiver, and Consent; and (ii) all correspondence between Legentand FlNRA
in connection with any actions, including FINRA Case No. 2007007133001. . .
7. Exhibit C, SchedUle J.18 - provide a copy of "Whittington's Claim of Discrimination and
Legent's Position Statement" which is referenced as an attachment to Schedule 3.18.
8. Please provide copies .ofany corresponden?e with SEC or FINRA in connection wjth
Legent's noncompliance With reserve requirements under SEC Rules 15c3-1 and 15c3-3.
Describe in detail the circumstances relating to such noncompliance, including a discussion
of any involvement by the Bailk or its pareilt company. What remedial measures have been
taken, or are proposed to be taken by the Bank: upon acquisition, to prevent a recurrence?
9. Exhibit E, Memorandum to Independent Directors - it is indicated in the Litigation section
that the total reserve for litigation in the [existing] escrow account is which [the .
Bank] believes to be adequate. However, in the purchase Agreement section, the Buyer and
Se.ller:has apparently agreed to establish an escrow account in the amount of $6.0 million to
cover & Subject litigation as well as other related expenses. Please clBrlfyas to
whether the two escrow acc()UIlts refe}:'enced are one and the same. If the same, indicate
whij;:h party is resporisible for the additional funds to bring the amount up to $6.0 million. If
two separate escrowacc01.mts, discuss how the $6.0 million account will funded.
10. Exhibit E, Memorandum t(). Independent Directors - in light. of the of litigation.
against Legent, whether Legent has been determined to have appropriate command &
control processes as well as policies & procedures in place. If not, disc:uss the proposed
remedial actions to be taken upon acquisition. ..
11. Exln"bit E, Memorandum to Independent Directors - provide a copy of the memorandum.
in page 5 that identifies and discusses the risks specific to securities clearing
. companies such as Legent. .
12. Exhibit F, Fauness Opinion Materials - the materials submitted under this exhibit is
. apparently a summary of the presentation made to the (independent) board of directors.
Please provide a copy of the actual written opinion itself prepared by Keefe, Bruyette &
Woods that, among other. things, provides the fmal conclusion as to the fairness of the'
proposed transaction from a financial point of view.
13. Exhibit G, Financial Projections - it is stated that "current expectations are for a $200 million
capital raise at the minimum." discuss the circumstances that haye resulted in this
more favorable assessment from the initial base case $125 million capital raise.
3036
Michael,J. Blayney, Esq. '7" United Western Bank
October 27,2010 '
Page 3
, '
14. Assuming no injection of additional capital to the Bank, provide a profonna projection of the
Bank's PCA capital ratios immediately!ollowingthe acquisition. .
15. Exhibits G & H ..... clarify the date of acquisition assumed for the financial projections
subrDitted under both Exhibits G & H. Aside from the three assumptions specifically . listed
pnder. Exhibit H (i.e., no capital raise, no TradeKing,no new correspondents), are the bases,
and assmnptlons of the financial statements in both Exhibits G & H otherwise the same?
What is the relationship between the financial statements shown in Exhibit G and those
shown in Exlnoit H?
16. Comment 7 - the resppnse makes reference to Schedule' 3.4 of the Purchase Agreement,
which had not been provided with either submission. Please provide a copy of Schedule 3.4
as well as the updated status of all required governmental/regulatory approvals, consents, or
notifications in connection with the proposed transaction, including for filings made with the
FDIC. SEC, arid FINRA. . .
17. Comment 8 - provide a copy of the (draft) resource/service sharing agreement proposed to be
, entered into by. the Bank and following the acquisition. '
18. Comment 20 - our previous'coIDIIi.ent may not have been sufficiently clear. Please discuss
, whether 'the Bank would still consider the acquisition of Legent based upon other strategic
and/or economic even if it were ultimately determined ,that the associated deposits
would be classified as brokered deposits for FDIC regulatory pmposes.
19. Comment 21- please discuss how the potential acquisition of Legent by the Bank originally
came under consideration. Did the Bank initially approach the Sellers or vice versa?
20. It is apparent from the proposal and projections that the amount of Bank deposits placed
through Legent will increase significantly after the acquisition. Explain how and where
Legent will obtain the substantial a:p1ount of new funds.
21. Explain how the Bank will manage the concentration risk from its apparent dependence on
Legent-originated deposits. Provide an assessment of the stability of the deposits placed
through Legent and the empirical: basis for such assessment
22. Discuss the competition that Legent faces from Penson Worldwide, Inc., including the future
competition for new business/clients. Aside from TradeKing, is Legent likely to lose other
clients to Penson Worldwide, Inc.?
. 3037
Michael J. Blayney, Esq. - United Western Bank
October 27, 201 0
Page 4
23. Purchase Agreement - please provide a copy of: (i) all Disclosure Schedules referenced in
the Agreement, as delivered at the signing of the Agreement, as well as any subsequent
supplements or amendments thereto; . and (ii) any written disclosures provided by the Bank or
its parent company to the Sellers in connection with the Agreement.
24. Purchase Agreement - clarify the identity and ability of the selling parties (e.g., Henry C.
Duques personally, the shell parent company, Legent Group, LLC, etc.) that will stand
behind the warranties, representations, and obligations of the Seller.
Please be advised that, pursuant to 12 C.F.R. 516220(a), should you fail to respond fully to the
above within 30 days of the date of this letter, we may deem your Application withdrawn.or
consider your non-response to be ground for an issuance of disapproval or obj ection. If you have
any-questions, please contact me at 650-746-7029 .
. n !A:..----
.
. Applications Analyst
cc: FDIC-Dallas
3038
'.
Tab'C
Exhibit 94 Q ,(2)
. 3039
3040
Anti-Mouey Laundering Program
. "February 2010
" '3041 .
Legent Clearing ,
Anti-Money Laundering Program'
Table of Contents
1. Introduction
a . .The PATRIOT Act
b. ' What is Money Laundering
c. Why we Must Comply
2. of Responsible and Duties
a; The Anti-Money Laundering Compliance Officer
b. Responsibilities "
, c. AML, Program Checklist
d. Periodic'AML Program Review,
3. Assisting Law Enforcement
a. FinCEN314(a)
b. :FinGEN 314(b)
c. Other Information Requests
d. Subpoenas
4. Other lnternal Controls
a.Blocking Accounts and Securities
b. Freezing ."
c. Risk Mitigation Action Process
d. Risk Mitigation Meeting
USA PATRIOT Act Section 311
, f: USA PATRIOT Act Section 312 .
g. Private, Banking Accounts and Covered Foreign Bank Accounts
5. Client Identity and Research
a. Know Your Customer (KYC)
, b. Customer Identification Program (CIP)
c.Due Diligence
d.Heightened Due Diligence
e. Office of Foreign Asset Control (OF AC)
f. Tagged Identifier List ,
g. Identity Theft Mitigation Program
6. Currency Monitoring
a. Cash or Currency Transactions
b. Cashiers Checks
" c. Bearer Bonds
7. Bank Secrecy Act Requirements
2
'3042
a. Transmitting Funds
b. Receiving Funds
c. Monitoring
d. Third Party Receipts .and Delivery
e. CTR Filing ,
f. CMIR Filing
g. FBAR Filing
h. SAR-SF Filing
8. Transfers and Journaling of Assets
a. Timing of Transfers
b. Third Party Review (Cash, Securities and Wires)
c. Securities JournalingBetween Accounts
d. Cash journaling Between Accounts
9. Red Flags
a. Indicators at the Account Opening Stage
b. Indicators Related to Account Activity
c. Structuring
d. Size and Frequency of Transactions
e. AML Account Activity Pipeline
f. Proactive Activity Review
g. New Account Review Program
10. Independent Audit
11. Additional Areas of Risk
12. OFAC / CIP Verification of New Correspondent Firm Principals
13. Employee Training and Continuing Education
14. CIP Verifications for Employee And Employee Related Accounts
15. Required Books and Records
16. Who to Contact" if you Suspect Suspicious Activity
17. Adopted by Legent President or Designee
-- ---- -- ----- - - - - - - - - . - - - - - ~ - -_.. -
3
"3043
".
... .. -.--'
1. Introduction
Legent Clearing' ("Legent") does not do business with individuals or firms
suspected of money. laundering or who are engaged in any activity, which
facilitates money laundering or the funding of terrorist or criminal activities. The
firm is committed to complying with all rules and regulations designed to. combat
. money-laundering activity, including those rules and regulations requiring the'
reportin.g of transactions involving currency equivalents. certain -money laundering
instruments and suspicious activity. : Every individual associated with this firm has
a responsibility to protect the firm from exploitation by money launderers. Failure
to comply with these procedures and regulations may expose an individual or the
firm to significant civil and criminal penalties.
a. The USA PATRIOT Act .
On October 26, 200.1, President Bush signed the Uniting alld Strengthening
America by Providing Appropriate Tools Required to Intercept 'and Obstruct
Terrorism (PATRIOT Act), is designed to detect, deter, and.punish terrorists in the
United States and abroad and to enhance law enforcement investigation tools
aimed at giving the government new powers in the war on terrorism. Title III of
the PATRIOT Act, the International Money Laundering Abatement and Anti-
Terrorist Financing Act of 2001(Money Laundering Abatement Act). imposes
significant anti-money laundering requirements Qn all financial institutions,
including broker-dealers, andalso gives the U.S. Treasury Department the power
to impose potential additional obligations on them .
.. Further, securities firms are subJect to .the provisions of the various sanctIons
programs admi.riisteredby the Office of Foreign Assets Control (OFAC). These
include prohibitions against trading with certain identified enemies of the United
States, as set forth in various lists prepared by OF AC and .other agencies of the
government. These alsq include certain money identified by the.
government under the Foreign Narcotics Kingpin Designation Act.'
b. What is Money Laundering?
.. Legent has expanded the definition of the term "Money laundering" to include all
Anti-Money Laundering ("AML") risk-related threats specific to our firm. Legent
divides AML Risks into four general categories; 1. Securities Fraud," 2. Money
Laundering, 3. Terrorist Financing and 4.) Tax Avoidance. A description of these
terms is as follows:' ..
Securities Fraud: A crime or offense in which securities investing or
trading laws have been violated. This practice involves any transaction or
transmission of information within the financial market that is intended to
. deliberately deceive another entity or individual "for personal gain. Specific
threats include, but are not limited to the following:.
-Bribery/Gratuity
-Check Fraud
4
3044
-Embezzlement/Theft
-Commodity Futures/Options Fraud
-Microcap Fraud
-ForgeJ;'y
-Identity Theft
-Insider Trading
-Ma,rket Manipulation
-PrearrangedlN on-Competitive Trading
-Wire Fraud
Money Laundering: Engaging in any act that is designed to conceal or
disguise the true originof criminally derived proceeds so that the unlawful
proceeds appear to have derived from legitimate origins or constitute
legitimate assets (e.g. FINRA NTM02-21).Money laundering occurs in
connection with a wide variety of crimes, including, but not limited to, drug
trafficking, robbery, fraud, racketeering, and terrorism. The three stages of
Money Laundering are as follows:
1.) Placement: Cash profits from criminal activity are converted into
monetary instruments, such as money orders, traveler's checks, or
deposited into accounts at financial institutions.
2.) Layering: Funds are transferred or moved into other accounts or
other financial institutions to separate further the proceeds from their
criminal origin.
3.) Integration: Funds are reintroduced into the economy and used to
purchase legitimate assets or to fund further criminal or legitimate
activities.
Terrorist Financing: Any attempt to provide, collect, distribute or conceal
funds that are directly or indirectly intended to:
-Cause death or serious bodily injury to civilians who are not taking
an active part in the hostilities in a situation of armed conflict.
-Intimidate a population.
-Compel a government or international organization to do or abstain
from any act.
-Advance a political, social or religions agenda with the use or threat
of force.
Tax Avoidance: Any unlawful attempt to minimize tax liability through
fraudulent techniques designed to circumvent or frustrate tax laws. Such
techniques may include the following:
5
3045
under-statement of taxable income.
-Willful non-payment of due ..
,-Failure to report tax obligation, or reporting inaccurately.
-Use of "Off;'shore Tax Shelters" 'or "Foreign Shell Companies" used
avoid less-favorable 'local tax laws and obligations.
c. Why Must We Comply?
It's the law. It is also Legent's policy to comply fully with all laws, rules and
regulations applicable to the firm's business. The securities industry is one the
heaviest regulated industries in the world. We are required by law to comply with
the anti-money laundering provisions of the'PATRIOT Act.
Penalties for violations of applicable law can be severe. CrimInal penalties include
fines up to $500,000 or twice the value of the property involved in the transaction,
whichever is greater, and prison sentences as long as 20 years. Violators may face
civil penalties up to the greater of the value of the property, funds, or monetary
, interests involved in the transaction -or $10,000, as well as'forfeiture of any
property involved in the transaction. The Bank Security Act (BSA) also imposes
severe criminal and civil penalties for violations of the. BSA or its implementing
, . _ regulations. The Money Laundering Abatement Act adds additional criminal and
civil penalties that can be up to two times .the amount of the transaction, .not to
$1,000,000' for violations' of certain B SA provisions. '
, Under the criminal statutes, a person .or entity could be, prosecuted for'
assisting or facilitating a transaction involving money laundering by a: customer if
the firm (or person) knew or was willfully blind t() fact that the transaction
involved illegally obtained funds. .
2. Assignment of Responsibfe Persons and Duties
a. The Anti-Money Laundering Compliance Officer
Gayann Renn,' VP Compliance Officer
Reporting Structure:
Fot purposes of the PATRIOT J\.ct'and all anti-money laundering issues, the
LEGENT Anti-Money Laundering Compliance Officer will report to the
EVP of Compliance. .'
b. Responsibilities.
a. Review and Update This Policy; implement and monitor the day-to-day
operations and internal controls of Legent's AMLcompliance program. '
b. Review. Various Reports and take action as appropriate.
c. File Suspicious Activity Reports (SARs). '
-
6
'3046
d. Report all Findings to Upper-Management and, as appropriate, certain
affiliated companies. .
e. Work .with Various Regulatory Bodies.
f. Monitor accounts and take such additional actions as are reasonable or
required, especially to account for any applicable new or 'revised laws,
rules or regulations. '
g. The Anti:,-Money Laundering Compliance Officer may from time to time
.delegate some or all of these responsibilities.
h. Perform at least an annual "review of FINRA .Contacts System ("FCS ,
system") to maintain timely contact information for AML as well as firm
points of contact. .. ,
i. File annual FINCEN notification form relative to information sharing.
j. Obtain certifications from Introducing Broker-Dealers regarding
compliance with AML functions designated to the Introducing Broker.
All Introducing Brokers are required to sign the "Anti-Money
Laundering between Legent Clearing LLC and
Introducing Correspondent" when they. set up a clearing relationship with
Legent. . .
c. AMLProgram Checklist .
Legent will maintain an AML Program Checklist ("Checklisf,) that documents the AML .
, assignments that are completed each week. The C;:hecklist is designed to compile specific
information regarding various tasks associated with Legent's AML Program a,nd to trackthe
progress and results ,of our program. The Checklist also a formal method of. '
structuring and documenting our AML responsibilities. Information will be compiled into the
Chilcklist at the time each assignment"is complete. A copy of each Checklist will maintained in
a file by the Compliance/ AML department. .
. Specific tasks that will be checked withiri. the Checklist include records related to the following
categories:
SARs
Account Review Pipeline ("Pipeline")
. New Account AlertingProgram ("NAAP")
. Proactive Account Review andAnalysis System ("PARAS")
.. Tagged Identifier List ("TIL") .
OFAC
Due Diligence
BORD Restrictions
314(b)
Heightened Due Diligence
d. Periodic AML Progra.m Review
. ....
AML,Officer and AMLSpecialist will conduct a meeting to review and
discUss all AML assiglunents that were completed during the previous period .. The AML
7
3047
Program Checklist ("Checklist") will be used as a guide throughout the meeting. Topics of
discussion will include: .
SAR reviews
. AML risk analysis
AML alerting system evaluation
Regulatory requirements and recommendations
Correspondent Finn communicatiQns
AML process and procedures
Updates to the AML program
Based ori the results. that were discussed during the pre:vious perio4, theAML Officer wiil
assess the overall perfonnance oftheAML program arid when necessary, make
recommendations in areas that require .
3. Assisting Law' Enforcement
a. FinCEN 314(a) .
Under Treasury's final regulations (published in the Federal Register on
September 26, 2002), Legent will respond to all Financial Crimes Enforcement
Network (FinCEN) request about accounts by taking reasonable action to search
o:ur records to whetliet: we maintain or have. maintained any account 'for
each individual, entity, or organization named in FlnCEN's request. Legent's
Compliance and AML staff is responsible for FinGEN's Online-system,
conducting the necessary reporting results and a'cting as a "point of
contact" for regulatory agents. Unless otherwise stated in FinCEN's request,
Legent searches current and accounts maintained by a named subject
during the preceding 12 months. Searches are conducted on the second.and last
Tuesday of every month. In addition, the is conducted using both the
subject's name (as spelled in the t:equest), and the subject's identification number
(SSN orEIN). If a match is identified, Legent will;report it to FinCEN' by
contacting the FinCEN agent listed at the top of the request report. If the search
results are negative, there will be no reply to a 314(a) request.
We will not disClose the fact that FinCEN has requested or obtained information
from us, except to the extent necessary to comply with the information reques.t.
'We will direct any questions we have about the request to the requesting Federal
.Law Enforcement Agency as designated in the 314(a) request. The.FINCEN
communication database is limited to a select number of Compliance and AML
staff and is accessible only with a secure username and password.
Unless otherwise stated in the information request, we will not be required to treat
the information request as continuing in nature, and we will not be required to
treat the .request as a list for purposes of the customer identific!'ltion and
verification requirements; and we are not required to file SARs against any named
subjects. We will not use the information provided by FinCEN for any purpose
other than to report to FinCEN as required under Section 314 of the PATRIOT Act.
8
'3048
b. FinCEN 314(b)
In accordance with Subsection 314(b) Qf the USA Patriot Act and31 CFR 103.110,
Legent Clearing has elected to participate in the voluntary information-sharing
program enacted by FinCEN. We understand that as a registered participant,
Legent is authorized to share information with other participating financial.
institutions, 'associations of financial institutions or Correspondent Firms
regarding individuals,.entities, organizations and counties for purposes of
detecting, identifying, or reporting activities that we or our counterpart suspects
may involve possible money laundering.
We further understand that the right to share information is effective for a one-
year period beginning on the Effective Date; and that in order to continue sharing
information after the end of the one-year period, firms must submit a n'ew .
registration request on an annual basis. As a result, Legent will continue to submit
a participation request each year on or before the expiration date of our previous
filing. We will maintain a copy of the CFR 103.110 Notification Form asa record
of our participation status. ' .
Legent will maintain the most current quarterly list of 314 (b) participating firms
available. Prior to sharing information with an outside firm, Legent will take all
reasonable steps necessary to verify that the other financial institution or
association with which we intend to share information has submitted the requisite
314(b) notice with FinCEN. This verificatiQn requirement may be satisfied by
'col1firmingthat an information-sharing counterpart appears on the 314(b) .
Participant list or by confirming directly with the counterpart that the requisite
notice has been filed. If a firm does not appear on the 314(b) participation list or
, informs Legeht that they are not a participating firm, Legent will not disclose any
information pertaining to or relating to an account, its activity or its authorized
signers.
c. Other Information Requests
The AML Compliance Officer will assign designated personnel to respond to
requests for information from FinCEN, Treasury, OFAC and any other regulatory
or law enforcement agency. The designated individual will search Legent's
records through inquiry into the back office system to determine if the individual,
ep.tity, or organization named in the request maintains an account, has maintained
an account, or has engaged in any transaction. If an account or transaction is
identified the identity of the individual,entity or organization, the account
number, all identifying information relating to the account, and the date and type'
of transaction will be reported to the requesting authority. We will also provide
any additional information that the agent requests. The information will be
reported to the requesting agency no later than seven business days from receiving
the request unless an alternative arrangement has been set.
Unless otherwise stated in the information request, we will not be required to treat
the information request as continuing in nature, and we will not be required to
9
3049
treat the request as a list for purposes of the customer identification and
verification requirements; and we are not required to file SARs against any named
subjects. We will not u.se the information provided by an agent for' any purpose
other than to report and disseminate required information. .
d. Subpoenas .
The AML' Compliance Officer or designee to all subpoenaed
notices from Law Enforcement Agencies or assign such.duties to their staff.
The designated Compliance and AML staff member will review the
subpoena and supporting documentation and take all necessary. action' to
complete the request within the specified .time period allotted.' A thorough
search will conducted through our b.ack office system to collect and
disseminate the requested information. Completed subpoena reports may be
delivered. to the. issuer electronically via email or CD, or as a physical
report.
In the event that information does not exist, is unavailable or unable 'to be
retrieved within the timeframe allotted; or instructions on the subpoena are.
unclear, a designated AML staff member will immediately inform the issuer of the
discrepancy and await fJlrther instructions. Copies. of research results will be
maintained by the assigned Compliance and AML staff member.
Unless otherwise stated in the subpoena, we will not be required to treat the notice
as continuing in nature, and We will not be required to treat the request as alist fO.r
purposes of the customer and verification req'!lirements and we are
not r'equired to file SARs against" any named subjects; We will not use the
information provided by the agent for any p':lrpose other than to report and
disseminate the required information." .
. 4. OtJter Internal Controls
a. Blocking Accounts and Securities
Legent will report each blocked account to the appropriate regulatory authority in
a timely manner.
b. Freezing Accounts
The AML Compliance Officer upon notification from OF AC (pursuant to
Executive Order #13224) will immediately review all accounts for any accounts
listed in the order. If there is a match or a partial match, verification of identity of
the client will be requested to the introducing broker. Upon positive
identification, the account will immediately be frozen through the back office
.system. This process will prohibit any deposits, withdrawals, or transactions.
OF AC will be immediately notified that assets have been frozen.
c .. Risk Mitigation Action Process ..
The Risk Mitigating. Action Process (tlRMAP") refers to the streamlined process
that Legent will follow upon identifying a potentially "High Risk" account(s).
10
3050
..,
These types of accounts will be id.entified and extracted from the following
sources:
. New Account Alert Program ("NAAP,,)l
OFAC
2
Due Diligence (Reports that score above ~ 5 0 n theRisk Matrix Calculator)
In the event that a potcmtially "High. Risk" account(s) is identified, Legent wIll
. deliver an RMAP Notice via email to the Correspondent Firm notifying them that a:
potential risk may exist. The firm will be provided with.the account number,
. account name, and a description of the risk. In most 'cases, Correspondent Firms
. will be required to respond to these notices, in writing, in order to confirm their
acknowledgement of the potential risk and to provide Legent with additional
information that may involve: .
A description of the Due Diligence that was used to research the client's
criminal and/or regulatory background, and the results of that research
(including OF AC research). . .
A description of the firm's understanding of the client's investment
objectiveand the activity that they expect the account to display.
A description of the risk preventative measures that the firm will take in
the event that derogatory information is obtained or the client's activity
deviates from the firm's expectations ..
In the event that the firmfails to.respond to such a notice, a second request will be
sent to the Correspondent Firm within five business days. If the firm fails to
respond to the second notice, the account will be placed on hold (full BORD
restriction)"until an adequate response is provided. .
For correspondent firms. that upload trades to the Beta system via a third party trade platform,
tJie BORD restriction will not stop trading in the client account. For those firms,the AMLCO
or designee will call or .email the AMLCO or CCO of the. correspondent fItm to give notice that
Legent will be'restricting the account(s) from further activity until a response is received on the
account(s). Legent will request the correspondent firm restrict trading activity for the
designated account( s). .
The AMLCQ or designee will review Beta report P322921B - AML Activity Account
Violations- to monitor for trading in restricted accounts for correspondent firms that upload
trades into the Beta system. Any trades executed by the correspondent firm in restricted
accounts will be busted by Legent and moved to the correspondent firm's error. account.
Legent reserves the right to .take action on accounts that are opened by an introducing firm.
1 New AccoUnt Alerts are Notices only; Correspondent Firms are not required to provide a response
. .
2 Possible OFAC matches requin: the Correspondent Fin:ns to provide a description of the source used to research
the potential match and. the results (conflIlD or reject). If a ma.tch is rejected, the account may stay open without
Legent taking any additiol!-al action.
11
3051
.--------_._--,. - ... __ .... _.-.-
Firms that do provide.a response and ackn,owledge the risk can either close the
account or allow it to remain open. In the event that an account is closed, Legent
will "take no further action. In the event that the. account remains open, it will be
. submitted for further.reviewdudngthe next Risk Mitigation Meeting ..
Copies of all RMAP Notices, responses and restrictions will be maintained on file
by Legent's Compliance/ AML department.
d. Risk Mitigation Meeting
. The :Risk Mitigation meeting is a periodic meeting between various managers of the
Compliance and Operations department along with the AML Specialist. The'Corrinuttees'
purpose is to evaluate potentially high risk accounts and to determine what actions should be
taken to mitigate thepotential.risk. .
Accounts are presented to the Committee by the AML Specialist and are drawn from various
sources including;
Accounts that have produced a significant exception report from MIS's Due Diligence
database, and the managing Correspondent fInn has indicated that they are willing to
assume the risk and allow the account to remain open.
Any Account that has been the subject of a. SAR fIling
An;y new account that has triggered a'match-alert' on Legent's Tagged Identifier List
("TIL")
The purpose of this meeting is to evaluate risk on specifIc accounts on a case-by-case basis.
Based on the results of this meeting, action against an account may include any combination of
the following:
. Request additional information from the Correspondent Firm
Place the account in the Deiayed Pipeline
Freeze all assets within the account
Request account closing
No action .
The Risk Mitigation Meeting will also include a review session to ensure that all recommended
action has been fully implemented and to. provide additional guidance when necessary.
e. USA PATRIOT Act Section 311 .
Select members of the Compliance/AML Department will monitor announcements from the US
government or applicable regulators in connection with Section 311 of the US Patriot Act.
Typically, such announcements involve bankS, or other fInancial institutions, as well as
countries that have been sanctioned by the US .government
'_. _._---
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3052
The Al\.1L Officer or designee is responsible for regularly reviewing the section of Financial .
. Crimes Enforcement Network's website in relation to "Section 311-Special Measures" (web
address http://www.fincen.gov/reg section 311.html) to detennine whether any new
announcement have been added. This review will be conducted regularly or upon notification
from FinCEN. The Al\.1L Officer receives email updates from the Financial Crimes
Enforcement.Network when new or updated information is posted .
. If the review detects any new information the AML Officer or will be responsible for reviewing
the content and determining whether any actions must be taken. This may include searching the
Firm's account records to locate accounts for a specific customer or for accounts established in
specific countries which are listed on the above referenced website.
Should any accounts for sanctioned customers or countries be found to be open and active, the
AML Officer will inform senior management. Then depending on the nature of the sanction
involved, the reqtiiredaction will be undertaken. If necessary, such account may be coded, "No
Further Business as per AML Compliance".
The AMI., Compliance Officer will maintain a memo to files of such fmdings and actions taken.
Supporting documents evidencing actions taken will also be maintained.
f. USA PATRIOT Act Section 312
Under section 312 of the US PATRIOT Act, as amended, brokerage firms are required to
identify accounts defined as FFI's' (foreign) financial institutions) and conduct due diligence to
determine the risks of money laundering. Correspondent accounts are defined as "accounts
established to receive from, make payments on behalf of foreign financial institution or
handle other fmancial transactions related to such institutions." FFI's are defined as "foreign
banks, any branch or office located outside the US of a financial institution such as a
broker/dealer, mutual fund, futures commodity merchant as well as any other organization
under foreign law", which if organized in the US would be subject to registration. This also
. includes currency dealer or exchangers, as well as money transmitters.
All new accounts opened for FFI's must be opened only for the purpose of conducting
proprietary business for the entity that opened the account. As such, third party wires as well as
third party asset movements are not permitted. FFI's that wish to continue to conduct business
on behalf of their underlying customers are required to open separate accounts for those
customers, on a fully disclosed basis. Any such accounts will be subject to review and
clearance by the AML unit in accordance with the Finn's existing procedures.
Additionally, as of September 5, 2006 existing FFI customers must be limited to proprietary
activity only and will be subject to the same third party wire limitations discussed above.
Financial Advisors should notify applicable customers of this change of policy and commence
the opening of fully disclosed accounts for each of those entities' underlying
customers.
It should be noted that if an FFI opened in a member country of the Financial Action
task Force; that account will still be subject to enhanced surveillance and may be requested to
supply documentation in support of third party money or security movements.
13
3053
Any request for exemption will be submitted to compliance for additional risk based due
diligence. Senior management must approve all such request after careful review.
Currently, Legent does not open retail accounts, however, in the event that a
securit"ies account would be opened fora foreign bank, the Designated Principal
must ensure that the foreign bank is not a shell bank, nor will the foreign bank use
the account to provide services to any shell banks.
3
A shell bank is defined as a
foreign bank without any physical presence/fixed address. Under no circumstances
will Legent maintain an account relationship with a shell bank, even indirectly,
. 4
under penalty of law. ..' . .
If Legent intends to open a correspondent account on behalf of a foreign
institution, the Designated Principal must ensure that such account is not
controlled by, or indirectly benefits, a foreign shell bank.
For each account of a foreign bank, including correspondent accounts of foreign
banks, Legent will use the certificl;l.tion form recommended by the Treasury, which
provides a safe harbor from the relevant section of the USA PATRIOT Act. The
certification form requires the foreign bank to state that it either:
. Maintains a place of business ata fixed address and is subject to inspection
by the banking authority that licensed it (in which case it must specify its
physical address and regulator);
Does not have a physical presence in any country but is a regulated affiliate
(as defined above, in which case it must provide the name and address of the
non-shell bank with whom it is affiliated and the regulator of the non-shell
bank and the regulated affiliate); or
, . .'
Does not have a physical presence and is not a regulated affiliate.
The certification further requires the bank to certify that it either does not provide
banking services to any foreign shell bank that is not a regulated affiliate, or used
to provide banking services to foreign shell banks that are not regulated affiliates
but ceased doing so by December 25,2001. The certification form must include
the following (and a copy must be maintained with the account documentation):
The identity of its oWners (see below for more information on ownership of
foreign banks);
3 This does not apply to a regulated affiliate of a depository institution or foreign bank that is subject to supervision
and examination by a banking authority in the country regUlating the bank.
4 Sometimes these banks will not identify themselves as banks, so associates should be cognizant oflanguage
within the name of the entity or within the accompanying documentation that may indicate banking activity;
particular scrutiny should be made where the country of origin/incorporation/registration is on the list of non-
cooperative jurisdictions identified by the FA TF. .
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3054




The identity and street address of the person in the U.S. authorized to accept
service of process; ,
State tp.at the foreign bank will notify each financial institution in the u.S.
at which it maintains a correspondent account in writing within 30 calendar
days-of any change in facts or circuinstanees previously certified or '
contained in annexes to the certification;
State that it understands that each financial institution iri the at which'
it maintains a correspondent account may provide a copy of the certification
to the Secretary (of the Treasury) and the Attorney General or their
delegates. '
An owner includes those capable of exercising substantial power over the
bank; LEGENT is r:equired tp ob,tain the identities of any person who is defined as
a "large direct owner
u
, "small direct owner" or "indirect owner". This form must,
be signed by an authorized person on behalf of the foreign bank, and, at least once '
every two years, the Designated Principal will ensure that,the information
, previously provided by the foreign bank is verified,via the Treasury's re- ,
certification form.
5
Any account held by a foreign bank (including a correspondent
'account) must be closed within 10 days if the foreign bank rails to respond to a
U.S. Government'subpoena. The Designated Principal wlll scrut'inize any account
activity during that 'I O-day period to ensure that any suspicious activity is
appropriately rep'oited and to, ensure that no new po'sitions' established in the
account(s).
If a correspondent account is opened for a foreign financial institution, the
Designated Pri'ncipal is,l'esponsible for (i) subjecting the account to close scrutiny
in order to deteCt/report suspicious activity and (ii) producing account information
related to that account within seven business days upon request from federal law
enforcement. , In addition, the Designated Principal must:
SA "person" means any individual, bank, corporation, partnership; liffiited liability company, or any other legal
entity ,except ,that members of the same family (parents, spouses, children, siblings, uncles, aunts, grandparents,
first cousins, second cousins, stepchildren, stepsibilings, parents-in-law, and spouses) shall be
considered one pers6n. A "large direct owner" is a person who (1) owns, controls, or has power to vote 25 percent
or more of any class of voting securities or other voting interests of the foreign bank. or (2) controls in any
the election of a niaJority of the directors .( or individuals. exercising similar functions) of the foreign bank. If any
, large direct owner of a foreign bank is majority-owned b)' another person, or by a chain of majority-owned
persons, an "indirect owner" is any person in the ownership ,chain who is not majority-owned by another person. A
"small direct owner" is a person who owns, controls, or has power to vote less than 25 percent of any class of
voting securities or other voting interests of the foreign bank A small direct owner's identity need not be reported
unless two or more small direct owners (1) in the aggregate own 25 percent or more of the voting or
interests of the foreign bank. and (2) are owned by the same indirect owner. If any two or more small direct owners'
of a foreign bank (1) in,the aggregate own, control, or have power to vote 25 percent or more of any class of voting
securities or other voting interests of ,the foreign bank and (2) are majority-owned by the same persOn or by the
'same chain of majority-owned persons, the "indirect owner" is any person in the ownership chain of the small
direct owners who is not majority owned by another person. "Voting shares or other voting interests" are shares or
other interests that entitle the holder to vote for or select directors (or individuals exercising similar functions).
.. .,.,'
15
'3055
---------- _ .....
Assess whether the foreign financial institution presents a significant risk of
laundering, based on any relevant factors;
Consider information available from U.S. governmental agencies and
multinational organizations with respect to supervision and regulation, if
any, applicable to the foreign financial institution;
. Review guidance issued by Treasury Department, SEC or NASD
regarding money laundering risks associated with particular foreign
, financial institutions and correspondent accounts for foreign financial
institutions generally; and,
-Review public information to ascertain whether the foreign financial
institution has been the subject of criminal action of any nature, or
regulatory action relating to money laundering.
If Legent intends to open a correspondent account for a foreign bank that: (i)
operates under an offshore banking license; (ii) is licensed by a foreign country
that has been designated as with international anti-money
laundering principles; or (iii) is licensed by a foreign country that the Treasury
Department has identified as warranting special measures due to money laundering
concerns, the Designated Principal is also responsible for:
Enhanced scrutiny of the correspondent account to guard against money
laundering and to ensure d,etection and reporting of known or suspected
illegal activity;
_ Obtaining and reviewing documentation relating to the foreign bank's anti-
money laundering program and considering the extent to which the foreign
bank's program is reasonably designed to detect and prevent money .
laundering;
Determining whether the foreign bank holding the correspondent account
maintains correspondent accounts for other foreign banks and, if it does,
then the identity of those foreign banks and assessing and
minimizing the risks with respect to money laundering risk they pose; and,
Identifying the owners and the extent of each owner's ownership interest in
the foreign bank if the bank's shares are not publicly traded.
6
.
6 Correspondent accounts for a branch of a foreign bank operating under an offshore branch license would not be
subject to these requirements if the foreign bank has been found, or is chartered in a jurisdiction where one or more
foreign banks have been found, by the Federal Reserve to be subject to comprehensive supervision or regulation on
a consolidated basis by the relevant supervisors in that jurisdiction, .and such foreign bank does not fall within
either of the other two categories of foreign banks for which the additional requirements apply. As of May 10,
2002, the Federal Reserve has made such a finding with respect to one or more foreign banks chartered in the
following jurisdictions: Austria, Belgium, France, Germany, Greece, Italy, Ireland, the Netherlands, Portugal,
16
3056
Enhanced due diligence by the Designated Principal may also include monitoring
transactions throu.ghthe correspondent account and obtaining information from the
foreign bank about the identity of the persons that will have authority to direct
transactions through the account and the sources and beneficial ownership of funds
or other assets oisuch persons in the correspondent account. If the account is a
pooling account, and the owner IS a bank or is another account that pools, the
ultimate beneficial owner must be determined.
In the event that an Introducing Firm opens a retail account (Bank, Broker Dealer
or other Financial Institution) additional information outside the scope of normal
acc9unt opening documentation will be requested from the account owner. The
Introducing Firm is responsible for obtaining and maintaining all such records
which may include:
Certified Articles of Incorporation
. Trust Agreement and Declaration
Letter of Administration
SEC Filings
Business License
Audited Financial Statements
Certificate of Good Standing from Regulator
Other Organizational Records
Legent is not responsible for obtaining or verifying this information, however, the
Introducing Firm should provide Legent with copies of all such records. In
addition, the relevancy of information and the required records obtained is at the
discretion of the Introducing Firm; however, Legent maintains the right to request
additional documentation whenever it is assessed to be necessary.
g. Private Banking Accounts and Covered Foreign Bank Accounts
Legent defines a "Private Banking Account" as any account (or combination of accounts) that
meets the following criteria:
1. Maintains a minimum aggregate deposit of assets of no less than $1,000,000.
7
2. Is established on behalf of, or for the benefit of a non-US person(sl
3: Is assigned to, or administered by an officer, employee, or agent of a bank who acts as a
liaison between a financial institution and the beneficial owner of the account(s).
Spain. Switzerland, the United Kingdom, Canada, Mexico, Argentina, Brazil, Chile, Australia, Hong Kong Special
Administrative Region, Israel, Japan, Korea, Taiwan, and Turkey. .
7 A bank may offer a wide range of services that are termed "private banking," however, even if certain services do
not require a minimum deposit of at least $1,000,000, these relationships will be subject to a greater level of Due
Diligence.
8 Private Banking Accounts may be established to provide customized and personalized banking service to wealthy
individuals, non-us political figures, persons "widely and publically known," or any immediate family member or
associate of such individuals. .
. 17
3057
Legent defines a "Covered Foreign Bank Accounts" as any correspondent accounts established,
maintained, administered, or m3!laged in the United States for or on behalf of a foreign
financial institution(s).
Legent has established appropriate, specific and enhanced Due Diligence policies and controls
that are designed to reasonably detect and report instances of suspicious activity within such
accounts. Specifically, our procedures are designed prevent the facilitation of any activity that
may be associated with money laundering, terrorist fmancing, or any fraudulent activity related
to movement or concealment of corrupt foreign proceeds. .
It will be the responsibility of the Introducing Firm to obtain all relevant documentation when
opening either a Private Banking, or Covered Foreign Bank Account; however, Legent will
request and maintain a copy of the following records and documentation as necessary:
. Report identifying the owners of the bank (if its shares are not publically traded).
Report of all other correspondent accounts associated with the bank ..
Confirmation of the identity of each account owner.
Description of the political status of each account owner.
Due Diligence report identifying any criminal history or past regulatory sanctions
related to the bank, its correspondents and their associated account owners.
Record of the source(s) of all funds deposited for each client's account.
Explanation of each client's investment objective, including the purpose of the account
and the type of activity that maybe expected.
Upon opening, all Private Banking andlor Covered Fordgn Bank Account will automatically be
placed on "Three Month Review" status to ensure that the activity taking place within the
account is consistent with the information obtained during the opening stage.
9
In the event that
LegentJeams of, or detects activity that that is inconsistent or contradictory to the information
provided, the Legent AML Department will contact the Introducing Firm immediately and
request a detailed explanation of the discrepancy .. If the Introducing Firm fails to respond to the
request within a timely manner, or provides incomplete or unsatisfactory .information, Legent
will place a full restriction on the account U?til the matter is .adequately resolved. Additional
reporting procedures may b ~ implemented including contacting Law Enforcement or filing
SARs when necessary. .
. In addition, new accounts for certain non-US banks will undergo a Heightened Due Diligence
process as required by Section 312 of the US Patriot Act. Qualified banks of this type will
possess the following characteristics:
Bank operates under an offshore banking license.
Bank operates in a jurisdiction found to be no cooperative with international anti-money
laundering principles. .
9 In the event that multiple Private Banking or Covered Foreign Bank Accounts are opened, Legent will prioritize
our review procedures to ensure that Greater Due Diligence is placed on those accounts with the largest.balances
or that display the most frequent and voluminous transactional activity.
18
3058
. Bank operates m a found to be of primary' money la.undering concern under
Section 311 of the US Patriot Act
The Enhanced Due Diligence used to research and/or investigates the individuals and entities
associated with these accounts will be conducted bya Third-Party Vendor as described in ..
section 5 d of this report .. If the Heig;htened Due Diligep.ce.program identifies any
derogatoryinfonnation related to Money Laundering,.Fraud or Terrorist Financing, the account
will'be closed immediately, reporting procedures will be implemented.
. 5. Client Identity and Research
a. Know Your Customer(KYC)
Securities firms are required to have policies and procedures that enable them to
"Know Your Customer (KYC)". The concept ofKYC in the securities industry has-
developed largely from existing rules of self-regulatory (SROs)
designed to ensure that a recommended securities transaction is suitable for a
particular customer. at: least th'e early 1960s, New York Stock Exchange Rule
405 has provided that, "each member organization is required perform due
diligence to learn the essential facts relative to every customer, every order, every
cash onnargin account accepted or carried by such organization and every person
holding power of attorney over any account accepted or carried by such
. organization.", See alsoFINRA Rules 2110 and 2310.
The introducing broker (not a clearing firm like Legent) is in the best position to
"know the Customer" and as such is principally responsible to identify money-
. laundering concerns at the account opening stage and thereto. In
accordance 'with FinCEN's Inandate, dated 03/04/2008 and titled: Customer Identification
Program Rule No-Action Position Respecting Broker-Dealers Op.erating Under Fully Disclo.sed
'Clearing Agreements According to Certain Functional Allocations.; Legent's policy is to
maintain a clearing agreement under which the functions of opening and approving customer
accounts 'and'maintaining relevant documentation is allocated exclusively to the Introducing
, Firm and that it is the sole responsibility of the Introducing Finn to comply with the
requirements of the CIP Rule. Legent will work with its introducing brokers regarding
AML as addressed in FINRA NTM 02-21. .
b. Customer Identification Program (CIP)
Upon opening an account or, changing client information, correspondent firms are .
. required to submit all availaole account information (for clients with a Tax ID) to.
Legent's "BETA" System. When a Correspondent Firm elects to use Legent's
Third-Party Vendor to assist in CIP research, the following client information.in '
required to be entered into the DAML Screen on the "BETA" System:
. Name
Date of Birth (for individuals) ,
Address (must be residential or business)
National Identification NUI11ber (SSN for US citizens)
19
3059
, Phone Number-(Home and/or'Business) ,
-Driver's License }.{umber (if.applicable)
For legal entities such as trusts 'or corporations" the name of the entity, the address
and ifpossible, .the Tax ID .are entered onto the DAML as well.
Legent utilizes a Third':'Party Vendor to assist its correspondents in the non-
documentary verification of custome,r identities. Client .information is
automatically sent from the "BETA'"system to Vendor on a daily basis. In
addition, updated account information is automatically delivered to the Vendor as
clierit information is changed or added. The Vendor verifies 'client information by
conducting a crosscheck of each individual's identifiers against open and closed
databases including the Experiancredit agency. Experian's database includes
social security numbers,addresses,phone numbers a.nd other selected risk criteria..
The RemitPro system'is a point-in-time check; it is not a continuous review.
Verifi'cationresults to correspondent firms on the Vendor's website
. '
within 24 hours of submission. Legent Compliance and AML staff members will,
review RemitPro reports for internal risk-control purposes; however, this review is
independent of any review andlor action conducted by the Correspondent Firm.
'Unless Identity Theft is suspected, Legent does not have to follow-up with, make
recommendation or conduct any additional research for the correspondent firm
(See section SF). '
c. Due',Diligence , :' ,
Legent 'Will als'o utilizes a Third-Party Vendor to assist in the research of client's
criminal, regulatory and politicafhistories. Results will- produce records of any
new account or.account owner'that has a history of criminal regulatory or foreign
. political involvement. will be automatically sent from
"BETA" system to the Vendor on a daily basis. This information is subject for
review on a 'continuous .basis. All accounts, including foreign citizens and legal
entities such asa trust or a corporation are submitted to the Vendor for review
when the account is opened and remain in the system indefinably. The Vendor
checks the customers idendfying information against OF AC and against its
internal database of customers that have negative events reported. In the event
tllata negative report is generated, the Vendor will send an exception report to'
both Legent and to the Introducing Firm. Reports contain the subject?s name,
account number, narrative of events and either a "Possible" or "Definite;" which
represents the Vendor's assessment ,of the likelihood that a reported subject
matches the individual or entity maintaining the account.
Designated Compliance and A:M:L staff members will review ex.ception reports at
. least two times a.month. This review process is independent of any review andlor
action required by the Correspondent Firm .. Legent will utilize a Risk Matrix
Calculator ("Matrix") to weigh risk. by assigning a score to each report selected
for review ..
20
;3060
Reports that are selected for review include any report that identifies a definite or
possible instance of fraud, money laundering, securities theft or manipulation,
narcotics/contraband trafficking, terrorism or identity theft.
The Matrix consists of six sectional categories, each of which is givena' specific
weight. Informationis extracted directly from the exception report and imputed
into the Matrix for scoring. A description of each category is as follows:
I ,
1. Definite/Possible (Weight: X6): Measures the likelihood that the subject,
, , ,identified onthe Negative Repori is a match to the account owner/signer.
2. Activity Date (Weight: X5): Measure of the recentness of the offense.
3. Alert Activities (Weight: X4): Measures the significance of the offense as it
, , relates to AML Risks.
4: Penalties (Weight: X3):Measures the severity of the offense as determined by
Regulatory or Law Enforcement Agencies. '
5. Investigative Status (Weight: X2):Measure of the involvement the subject had
to the underlining offense.
6. Investigative Body (Weight: Xl): Measure of the severity of the offense based
, on .investigative jurisdiction. ' '
In addition, for each report signifying a "Possible" match, Legent's
Compliance/ AML staff will conduct their own Due Diligence to research the
subject named on the report. Ip the event that our research confirms a positive
match, we will submit the report to the Matrix as a "definite" designation. In
addition, identifying information on all subjects named on a "definite" match will
be placed on the TIL.
Each section receives a raw score between one and five depending on the
information provided on the report. This raw score is multiplied by the "Weight",
assigned t9 each category and then totaled 'at the end of the report. If the total
score is 65 or above, Legent will consider the account(s) a significant risk and'
sp.bmit it to the Risk Mitigation Action Process ("RMAP").
Copies of all Matrix reports will be maintained on file by the Compliance/ AML
department.
d. Heigbtened Due Diligence
Legent Clearing utilized the services of an additional Third-Party Vendor to
perform Enhanced Due Diligence functions for higher risk accounts and
transactions associated with international jurisdictions. The Vendor conducts
subject investigations using Ii myriad of public record resources for any references
or ties to negative indicators, including politically exposed persons, fraud,
21
3061
terrerism, meney criminal activity, regulatery'actions, and litigatien.
Additienally, this firm has a glQbal.netwerk ef associated intelligence seurces,
with particular strength in emerging markets. The services previded by this firm
are utilized en a case-by-case basisas determined by Legent's Officer.
e. ,Office of .Foreign Asset Control.(OFAC) .
Legent utilizes third,-party to. conduct new. and existing client queries
threugh the Treasury'sOFAC "Specifically Designated an'd Blecked
Persens" List (SDN List). This query ensures that new and existing ,clients are net
matched against subjects with OFAC, and that such subjects are net
, engaging in transactiens with .individuals er entities frem embargeed ceuntries and
regiens. Legent dees net permit acceunts fer specifically designated nationals or
etherprehibited figures ner dees it permit private banking acceunts fer ne'n-US
persens.
Whenever anew acceunt is epened, the acceunt informatien is autematically sent
frem the ",BETA" system to. eur vender's query databases. The vender steres this
informatien and checks the names against OFAC en a daily basis. Cerrespendent
firms have direct access to. these reperts and are expected to. review them '
regularly .. Legentwillalse review these reports en a weekly basis. In the event .
that an acceunt(S) fails the OFAC search, Legent will consider it a significant risk
and will subtpit it to. the Risk Mitigatien Precess. '
If Legent is netifiede'r has reasen to. believe that a 'custemer has been pesitively
cenfirmed as an individual-named en the SDN List er is frem an embargeed
ceuntry er regien, we will freeze' all.assets within the acceunt and bleck any
pendingtransactiens immediately.' Legent's AML Officer will call the OFAC
Hetlineat 1-800-540-6322 and await further instructiens. The cempliance staff
will maintain cepies ef all documentatien, recerds and cemmunicatiens relating to.
OFAC.
f. Tagged Identifier List, "
The Tagged Identifier List ("TIL") is a list ef Names, Identification Numbers and Addresses that
are affiliated with individuals er entitles that have maintained "High Risk". acceunts at Legent
in the paSt. The purpese ef TIL is to. prevent "High Risk" ,acceunt ewners' and signers frem
, continueusly epening new accounts witheut Alerting Legent's Cempliance/AML department to.
, tb,e inceptien ef each account. the system is designed to. effectively identify "HighRisk"
Individuals and entities even if they purpesefully use altemativeIDfermatien to. co.nceal their
identity.
The determinatien to.place an'individual er entity en the TIL will be made by vario.us members
efthe Compliance!AML <;iepartment. The mest cemmen seurces o.f TIL records originate frem
the fellewing areas:
All o.wners and signers ef an acceunt or series ef acCo.unts that have been named o.n a
SAR filed by Legent.
22'
3062
All individuals and entities that have had a confirmed exception reports
produced against them by MIS or other Due Diligence sources.
Any other individual or entity that has been confirmed asa signifj.cant AML risk by
Legent, our Correspondents or an outside firm.
Legertt will compile and deliver TILs to McDonald Information Services ("MIS") twice
monthly. MIS will maintain these records and check them against the records of all new
account openings on a daily basis. In the that a name, identificaticm number or address
matches that of a new account, an alert will he automatically sent to Legent within 24 hours.
The alert identifies the new account name, account number and the reason for the match.
Correspondent Firms will not receive these reports.
Any new account(s) that are opened with identifying information that matches the information
listed on the TIL will be considered a significant risk and will be submitted to the
Risk Mitigation Process.. .
g. Identity Theft Mitigation Program
Legent Clearing implements an Identity Theft Mitigation Program designed to
detect, prevent, and reduce the availability of Identity Theft opportunities at the
inception, and during the maintain ace of our accounts. This program incorporates
existing AML policies and procedures to monitory and prevent identity related
risks.
In the detection of Identity Theft, there are several "Red Flags" that Legent has.
identified as indicators of a potential risks specific to our firm. "Red Flags" are
. relevant to both business and indIvidual accounts and include the following:
Social Security Numbers provided by a new account signer is the same as
that submitted by other persons opening a customer.
Submitted checks or other documentation appears tampered with or
falsified. .
The address or telephone number provided by a client is the same as the
information provided by an unusually large number of other persons opening
accounts.
Client attempts to open an account with false identification or by using a
"drop-hox" address.
Persons or entities attempt to conduct a transaction from an account in
which they have no signing authority. .
Account statements are routinely sent back to Legent.
Account activity does not reflect the specified investment objective of the
client.
Requests are routinely made to draft checks or send checks to a different
payee or address; or the account displays a sudden increase of unusual third-
patty wire activity.
23
3063
Correspondent firm or other financial institution alett Legent to activity or
documentation that may indicate that a client's identity has been
compromised ..
Legent has sevetal existing AML policies that assist in the mitigation of Identity
Theft.. A description of eaph is as fo1l9WS: .. ' . 0"
, 1 Legent utilizes McDonald Information Service, Inc., '(MIS) to in the,
research of client's criminal, regulatory and political histories. Results will
produce records of any new account or account owner that has a history of
criminal or regulatory involvement in Identity In the event that a negative
report is generate4 that relates to Identity Theft, Legent will take
action to confirm the subject's identity and inform the Correspondent Firm of the
, negative report .. ' Legent will not allow an account to be opened for any
, that has positively been identified as an offender of Identity Theft laws. Each such, '
case will be reviewed and assessed on a basiS, and in the ,event that a
positive match is made" the. be closed, and all assets immediately
be frozen. Law Enforcement will be contacted on a, case-by-case basis.
. .. "
. ' . .
2,. MIS also conducts CIP research and that are immediately
available for' Correspondent firm viewing. ,MIS vedfies client information by
conducting a crosscheck of each individual's identifiers against open and closed
Information including social security numbers, addresses, phone
numbers and' other selected risk criteria'are verified within 24 hours of submission.
, . Any discrepanCies or incidents of multiple-usage of such information will cause
MIS to produce a low score in its verification test. Legent has informed its .
correspondent firms that it is their responsibility to take appropriate action and, in
the event that IdentityTheft is suspected, notify Legent's Compliance and AML
, Department immediately. Legent will not allow an account to be ,opened foi any
customer that has positively been identified as an offender of Theft Identity laws.
Each such case will be reviewed and assessed on a case-by-case basis, and in the
event that a positive match is made, the account will be closed and all assets will
immediately be frozen. Law Enforcement will be contacted on a
basis. ','
6. Currency Monitoring
Legent is sensitive to the requirements, to check suspicious deposits, transfers,
journalentriesand other funds and security movements in or out of accounts or
among re'Iated and unrelated accounts. The following procedures are designed to
expose these suspicious or illegal activities. ' ' , ,
a.Cash or Currency Transactions:
Legent does not accept cash or currency directly from customers. If a
custqmer attempts to deposit cash or currency, the employee or
correspondent receiving the deposit is responsible for refusing the deposit
'and advising the customer of our procedures of the acceptable methods of
payment.
24
3064
i. Acceptable Methods of Payment:
Check drawn by the client against his bank account and signed by
him/her. ..
Checks drawn on a "nonlocal" bank will have a reasonable clearing
hold placed on them; The checks will clear trades and reduce margin
interest but will NOT be swept into the money fund or be available
for re-issue out of the a_ccount. - ..-
Check drawn by the client against his joint bank account and signed
by him/her.
Bank cashier's check drawn to the client and endorsed by him/her to
Legent
Check drawn by a third party payable to the client and -endorsed by
the client to Legent. .
. Investment Company Check
ACH Funds
Transfer of Funds from Margin Account (If sufficient "free cash".
Monitored by the Margin Dept.)
Transfer of Funds from another account (letter of authorization is
required Monitored by the Margin Dept.)
Same Day Substitution (Buy and Sell different securities on same
t r a d ~ date Monitored by the Margin Dept.)
- Later Day Sales/Liquidation (Sell of a security - different than the
one purchased) after the purchase--' only 3 allowed pe-r account-at
Legent within any -11 montb period Monitored by the Margin Dept.)
Wire transfers from like or third-party accounts (if accepted by the
correspondent prior to deposit -in the client account)
ii Unacceptable methods of payment:
Check payable to Legent and signed by th-e client as "trustee, executor,
guardian, attorney or agent" for another person but deposited to the
client's personal account. _
Check drawn on the bank account of a third party and signed by that
third party to a check to be deposited into the .client's account.
Stale dated checks (over 180 days old) .
Post dated checks - Legent will not be held responsible for depositing
post dated checks early.
Cash
Coupons unattached from bond
Legent does not impose restrictions on the deposits accepted by its
correspondents. As detailed in the clearing agreement, it is the
correspondent's responsibility for tracking and reporting, as appropriate, the
deposits they accept. - -
25
-3065
Legent will monitor deposits made by correspondent customers. If a
specific correspondent or client is identified of dep'ositing cash, Legent
Cash Management or Compliance will address the issue with the
correspondent firm. . .
b. Cashiers Checks
Legent allows our correspondent firms to accept cashiers checks as a form of
deposit in client accounts.
In order to assure possible reporting of a Currency Transaction Report ("CTR"),
Legentwill monitor a reportbased off of the TTS Currency Tracking Report
(PR13202). The report is converted to an Excel spreadsheet for ease of sorting
deposits by type.
c. Bearer Bonds
While the deposit of hearer bonds by a correspondent finn is rare, The Stock
Receipt Department has procedures in place for monitoring the receipt of such
items.
When a bearer bond is received by Legent, the Stock Receipt Supervisor will
notify the Compliance Department if the total value of the bearer bond deposit for
one single client account is valued over $10,000.
After review of the bOJJ-ds, Compliance will make a.determination on whether the
deposit meets the requ'irements f ~ r filing a CTR
7. Bank Secrecy Act Requirements
.The BSA authorizes the Treasury to require financial institutions, including
broker/dealers, to keep records and file reports about the source, volume and
movement of funds. In compliance with FINRA N1.'M 97-13, Bank Secrecy Act
("BSA,") Recordkeeping Rule for Funds Transfers and Transmittals of Funds,
Legent ensures the required documentation is submitted for all transmittals of
funds.
a. Transmitting Funds
The Margin Department receives and reviews the wire request from our
correspondent firms for transmittals of funds. Each request must include the
following items to meet the BsA requirements:
The name of the transmitter;
The account number of the transmitter;
The address of the transmitter;
The identity of the transmitter's financial institution;
The amount of the transmittal order and
. The identity of the recipient's financial institution.
26
'3066
For funds being transinitted, all the above items must b ~ included to complete both
the TTS system requirements as well as the bank wire system. If the above items
are not included, the initial request is rejected back to the correspondent until all
requirements are met.
h. Receiving Funds ,
For funds being deposited, the items listed below must be identified on the.
, incoming wire transmittaL For information that is omitted or missing, the Cash
, Management Department will work with both the correspondent firm and our bank
to identify all items needed. '
The name of the .recipient;
The address of the recipient;
The account number of the recipient and
Any other additional information if needed ..
c. Monitoring
Non-standard dep'osits made in cash equivalents, specifically money orders and
traveleris checks, should be brought to the attention of the Anti-Money,
Compliance Officer. The Anti-Money Compliance Officer should be notified if any
of the following activities occur: '
1. Multiple deposits are made in the same day .
. 2. Multiple deposits are made at or just below $3;000.00 during
the same day. or over a relevant period of time.
J. Multiple deposits made in multiple accounts under common
control.
4. Multiple deposits made with mUltiple types of cash equivalents
or normal deposit instruments. '
d. Third Party Receipts and Delivers
Legent does accept non-like named deposits, (i.e. if the remitting name on the
. deposit instrument does not match the title of the Legent account.) It is the
responsibility of the introducing broker to verify identity on third party deposits.
Legent Cash Management verifies third-party remitters and receivers of wire
transactions against the gover'nment's OFAC list. Any positive matches are sent to
the compliance department for review. All supporting documents of these
verifications will be maintained by Legent Cash Management.
In addition, the Bank Secrecy Act ("BSA") requires financial institutions to maintain records
and file reports that are determined to have a high degree of usefulness in criminal, tax, and
regulatory matters. The documents filed by businesses under the B SA requirements are heavily
used by law enforcement agencies, both domestic and international to identify, detect and deter
money laundering whether it is in furtherance of a criminal enterprise, terrorism, tax evasion or
other unlawful activity.
27
3067
"
,
In accOrdance with BSA requirements for frrms within the Securities and Futures Industry,
Legent has established policies and procedures for maintaining and filing the following reports:
, '
,e. Currency Transaction Report (CTR)
, Legent Clearing acknowledges that a CTR (FinCEN Form 104) must be filed for each deposit,
withdrawal, exchange of currency, or other payment or transfer, by, or to a financial
institution, which involves a transaction in currency of more than $10,090. Multiple currency'
traIisactions must be treated as a single transaction if the financial institution has knowledge '
that: (a) they are by or on behalfofthe same person; and; (b) they result in cash
recdved or disbursed by the fmancial institution of more than $10,000. (31 CFR 103.22).
Legent's policy prohibits any'and all transactions, payments or distributions in any
denomination of domestic or foreign In the event that a currency 'i:ra.Il$action is
requested, initiated or otherwise attempted; or if a know attempt is reported, Legent will ,
iminediately 'reject the order and take all reasonable action necessary' to return the funds back
to.the originating party. No CTR will be fIled, however a SAR inay be filed on a case-by-case
basis; ,
f. Report of International Transportation of Currency or Monetary Instruments (CMIR):
Legent Clearing acknowledges that a CMIR (FinCEN Form 1,05) must be filed for each person
,(includipg a bank) who physically transports, mails or ships, or causes to be physically ,
transported, mailed, shipped or received, currency, traveler's checks, and certain other
monetary instruments ,in an aggregate amount exceeding $1 into or out of the United
. States .
. In conjunction with Section (2) of the Exception category ofFinCEN Form lOS, Legent and our
Correspondent Firms are exempt from CMIR filip.greqUirements in respect to checks or other
monetary instruments mailed or shipped though the postal service or by a common carrier. In
'the event that a non-except instrument valued at an aggregate of $1 0,000 or more is delivered to
'. Legentfroma foreign postal address; or if a physical deposit or payment is delivered Legent .
through another method other than mail; Legent will immediately reject the order and take all
reasonable action necessarytoretum the instrument(s) back to the originating party. No CMlR
will beflled, however a SAR may be filed a case-by-case basis. .
g. Report of Suspicious Activity by the Securities and Futures Industries (SAR-SF)
Legent Clearing acIaiowledges that Financial Institutions must file a SAR (FinCEN form 101)
for any suspicious transaction or pattern of activity relevant to a possible violation of law or
regulation. (31 CFR 103.18'- formerly) 1 CPR 103.21) (12 CFR 12.11).
1. When to. File a Suspicious Activity Report (SAR-SF) .'
Legent's policy is to take allreasonable action to file a SAR-SF for any identified
regulatory or criminalviolation that is know or suspected, and is either committed
or attempted through our firm ifit aggregates at least $5,000 infunds. We will
file a SAR-SF any time we identify a transaction or pattern af transactions that
raises an identifiable 'suspicion of money terrodst financing, fraud or
28
';3068
tax-evasion. In addition, we will file a SAR-SF in the event that we suspect funds
,are:
Obtained from illegal activity
Used to finance illegal activity
Transmitted in a manner as to be conceal their source or destination
Transmitted in a manner as to avoid Federal detection
. . .
LegentClearing's Compliance and AMi., staff works congruently with other
departments and outside firms to monitor and assess transactions, patterns of
transactions, characteristics and other activity that meet the risk-standards set by
our threat assessment. The final decision to file a SAR-SF or take other reporting
action is made by Legent's AML Officer. We have enabled several monitoring and
reviewing systems designed to identify high-risk 'accounts and analyze, extract and
report suspicious transactions and patterns. '
Although our Compliance and AMLprogram does not base filing decisions solely
on whethertransaction(s) falls above setthreshold(s), we do maintain a rating and
prioritizing system for report filings that includes variables such as number of
transactions, number of shares, value of funds and situational risks. In the event
that an account displays activity that is assessed to be a heightened threat,
Legent's AML Officer will notify appropriate Law Enforcement immediately
andlor file a SAR-SF with FinCEN.
2, Reporting Procedure. ,
Legent Clearing will report all suspicious transactions detected and prioritized as a
significant risk by completing a SAR-SF form and contacting respective Law
Enforcement Authorities when appropriate. In addition, Legent will continue to
coordinate and accept offers of "Joint SAR Filings" with other Firms whenever to
do so is assessed to be appropriate and effectual.
The SAR-SF form will be delivered to FinCEN no later than 30 calendar days after
the date of the initial detection of the facts that constitute a basis for filing. If no
suspect is identified on the date of initial detection, we may delay filing the report
for an additional 30 calendar days pending identification of a subject, but in no
case, will the reporting be delayed more than 60 calendar days after the date of .
initial detection.
Legent will fully and accurately complete each field on the SAR-SF form to the
best of our ability. If we have insufficient information to complete a particular
field, it will be left blank. An explanation of the missing data will not be provided
in the body of the Narrative., In the event that there are'multiple Subjects linked to
the report, an additional Subject Information (SAR-SF: Part 1, page 1) will be
.' attached to the back of the SAR-SF for each additional Subject.
The Narrative of the SAR-SF is designed to assist Law Enforcement understand the
full contexts, of a suspiCion. Legent will provide a clear, complete and
29
3069
, chronological description p{ such activity. ,This description will include the
following'information: '
Legent's relationship,with,the Subject(s).
The purpose for the SAR-SF filing. '
A detailed account of the activity that was'-coinpleted or attempted.
A summa,ry of all values and share. amounts. '
. A summary of all transactions and transactors.
Any attempts 'to avoid regulatorY-detection.
. Any known violation of the law.
Although Narratives are customized to report specific incidents of suspicious
activity, Legent will use a general format template as a guide to produce reports of
similar activity. In addition, the transactions, values and share amounts that are
reported in a Narrative may only representa fraction (sample) of the total amount
of activity within this subject's aC90unt(s). ,
All completed SAR-SF's will be reviewed by Legent's AML Officer or another
designee when needed. Up()n approval, the AML Officer will initial the report and
immediately submit the SAR-SF for filing.
All identifying information displayed on a SAlt-SF will 'be placed into the TIL.
will coliect and maintain supporting as required by the BSA
regulations. Copies of any SAR-SF will be filed and the original or business rec'ord
equivaient of any support documentationwill be maintained fc;>r five years from the
. date of filing. We will identify and. maintain supporting documentations and make
such information available to FinCEN and other regulatory 'and Law Enforcement
, agenCies, upon request. Each SAR file will maintain a SAR File Checklist" that
identifies all the relevant information that is housed in the file. '
We will not notify any person identified as a subject in the reportthat a SAR-SF
'has I\ot been filed, nor will we share the contents of a SAR with anyone except
FinCEN.
Report of Foreign Bank and Financial Accounts CFBAR):
Legent Clearing acknowledges that an FBAR (Department of the Treasury Form 90-22.1) must
be filed by each person (inc1udmg a bank), subject to the jurisdiction of the United States, .
having an interest in, signature or other authority over, one or more bank, securities, or other '
fmancial accounts in a foreign currency if the aggregate value of such accounts at any point in a
calendar year exceeds $10,000. (31 CFR 103.24) ,
'Legent currently maintains 2 foreign bank accounts,to accommodate customer deposits either in
Euros or Pounds Sterling: Both accounts are through ING Bank with one account in Frankfurt,
, ,
30,
3070,
Germany, and t1;le other in LoJ.1don, England. The are connected with Legent's main .
accounts at Wells Fargo Bank for combined monthly statement purposes.
The Department of the Treasury Form 9.0-22.1 will be completed by the Cash Management .
department and submitted to the Treasury on or before June 30
th
of the
following the reportable event. A copy of all will be held at Legent for no.less than five
and will be maintained by the Cash Management department. ..
8. Transfers and Journaling of Assets
Legent is required to use reasonable efforts to verify the recipient of
each Transfer of Assets. A Transfer of Assets can be defined as a .
wire, ACAT, tape-to-tape transfer, Block Transfer,
account-to-account journals, or a check written from Legent.
a. Timing of Tranders
Transfers made that meet the follow criteria or other activity that does not seem .
normal for the account should be brought to the attention of the Anti-Money
Compliance Officer: . .
..
1. Multiplt:dransfers are made in the same day.
2: Multiple transfers that are at or just below $3,000.00 during the same day or .
over a relevant period of time.
3. Multiple transfers made to accounts under common control. ...
4. Multiple transfers made to mUltiple accounts.
Third Party Review (Cash, Securities and Wires)
Legent Clearing requires copies of letters of ("LOAs")
approved correspondents in order to move cash, securities or wires
from un-related or non-like tjtled accounts. Third party movement (DTC or
journal) of penny stock, penny stock proceeds is not allowed by Legent
unless under the normal course of business (individual to joint account,
individual or joint to trust account, etc.). .
. The Margin Department receives the instructions and reviews the request.
For any transactions that raise red flags, the Margin Manager revi.ews the
LOA. If warranted, the Margin Manager will bring to the Compliance
Department for further review. .
On a daily basis, the Margin Department delivers copies of all the
Compliance Department for review. Compliance manually reviews the
transactions. If Compliance has questions regarding the LOA, we will
contact the correspondent for further explanation. If the response submitted
by the correspondent is sufficient, Legent may ask for more ..
31
3071
,.'
documentation from the correspondent and monitor, the account. If the
activity continues to, occur, we wiil make the on whether to file a
SAR.
i. Incoming Third Party .Wires
LegentClearing requires authorization from our correspondents to receive
an incoming wire from non-like titled or unrelated account. '
The Cash Management Depiufment will receive notice of the incoming wire
on the federai wire system. If the sender of the wire does not match the
recipient accoU"nt at Legent, Cash Management will notify the correspondent
of the incoming wire. Cash Management will request authorization from the
correspondent via email if the wire should be accepted. The. email notice to
the corre'spondent contains the date of the wire, amount, beneficiary name,
beneficiary account number and the, originator of the wire. The '
correspondent will respond via email to Cash Management whether to accept
or reject the wire. '
,If Compliance has' questions regarding the wire or activity in the beneficiary
account, Compliance will contact the correspondent for further explanation. '
If the submitted by the correspondent is not sufficient, Legent will
ask for more documentation or monitor the 'account. If the activity
continues to occur, we will make the de,cision on whether to file a SAR.
c. Securities Journalingbetween Accounts
, Legent Clearing requires authorization from our correspondents to journal
,securities' from non-like titled or unrelated accounts. For journal between
like-titled accounts, no ,physical letter of authorization is required to be
submitted.
. ,
A cumulative report of secufities journaling is created on a monthly basis,
for review of patte'rn or excessive journaling. The report is ,in Excel format
'for ease of sorting by name and security. Any issues of excessive or pattern
journaling will be noted and the correspondent firm contacted for further
explanation. If the activity continues to occur, we will make the decision on
, whether to file a SAR.
d. Cash Journaling between Accounts
Legent Clearing requires authorization from our correspondents'to journal'
cash from non-like titled or unrelated accounts. For journals between like-
titled accounts, no physical letter of authorization is required to be
submitted. '
, A cumulative report of is 'created on a monthly basis for review. of
pattern or exc,essive journaling of cash. The report is in Excel format for
ease of sorting by name, account number and dollar amounts. Any issues of
excessive or pattern journaling will be noted and the correspondent firm
32
'3072
. contacted for further explanation. "If the. activity continues to occur, we w"ill
make the decision on whether to file a SAR.
9. Red Flags
Suspicious aCtivity can occur at the outset of the client relationship or aft(!r the
.. relationshjp has been initiated. Transactions-should be viewed in thecontext of
other account activity and a determination of whether the transaction is actually
suspicious will necessarily depend on the customer and the particular transactiori,
in relation to the customer's normar business activity and the facts particular and
. circumstances. Unusual or questionable transactions may include transactions that
appear to lack a reasonable economic basis or recognizable strategy based upon
what the firm knows about the particular customer.
a. Indicators at the Account Opening Stage:
1. A customer exhibits an unusual concern regarding the firm's
compliance with government reporting requirements, particularly
with respect to his or her identity, type of business and assets, or
is reluctant or refuses to reveal any information concerning
business activities, or furnishes unusual or suspect identification
or business documents.
2. A customer wishes to engage in transactions that lack business
sense, apparent investment strategy ,or are inconsistent with the
customer's. stated business/strategy.
3. A customer has a questionable background or is the subject of
news reports indicating possible criminal, civil or .regulatory
violations. .
4. A customer appears to be acting as the agent for another entity but.
declines, evades or is reluctant, without legitimate commercial
reasons, to provide any information in response to questions about
that entity; and .
5. A customer has difficulty describing the nature of his or her
. business or lacks general knowledge of his or her industry.
b. Indicators Related to Account Activitv:
1. A customer attempts to make frequent or large deposits of
currency, insists on dealing only in cash equivalents or asks for
exemptions to the firm's policies relating to the deposit of cash
and equivalents;
2. A customer engages in transactions involving cash over $10,000 or
cash equivalents or other monetary instrliments that appear to be
structured to avoid government reporting requirements, especially
if monetary instruments are in an amount just below reporting or
recording thresholds and/or are sequentially numbered;
3 .. A customer engages in multiple transfers of funds Cir wire transfers
to and from countries that are considered bank secrecy or "tax
havens" that have no apparent business purpose or are to or from
33
3073
listed as non-cooperative by FATF and FinCEN, or are
otherwise considered by the .firm to be high';risk;
4. A customer makes a funds .deposit followed by an immediate
request that the money be wired out or transferred to a third party,
or to another firm without any apparent business purpose;
5. A customer makes'a funds deposit, for the purpose of purchasing a
long-term followed shortly thereafter by a request to
. liquidate position and a transfer of the proceeds out of the
.
6. For no apparent reason, a customer has mUltiple accounts under a
single name or multiple' names, with a large number of inter-
accountor third party transfers; .
7; A customer engages in excessive jpurnal entries between unrelated
accounts without any apparent business purpose;
8. A customer requests that a transaction be processed in such a
manner so as to avoid.:the firm's normal documentation.
requirements';
9 .. A customer engages in transactions involving certain types of
securities, such as penny stocks, Regulation "S" stocks and bearer
. bonds, which, although legitimate, ha:ve be.en utilized in
connection \Vith fraudulent schemes and money laundering
activity;
IO.Acustomer deposits bearer bonds followed by an immediate
.request for the' of funds; and .
II.A customer exhibits a total lack of concern regarding risks,
commissions, or 'other transaction costs.
c. Structuring
Individuals involved in money laundering may have participated in' a practice
called "Structuring" in which a customer spreads dc;posits of currency or cash.
equivalents over several accounts or a number of days. "Structuring" is illegal and
is strictly prohibited. All Legent personnel, especially superviso.rs, will use
reasonable efforts to detect such activity.
d. Size and Frequency of Transactions
The size and. frequency of transactions can be an indication of activity that may
. additional r/?view. . .
The above listed "Red Flags" are not exhaustive, and are simply examples of
circumstances that may require further due Legent will work with its
introducing brokers regarding how Legent and each introducing broker will work
. in concert and separately, regarding AML compliance efforts.
e. AML Account Analysis Pipeline
Legent's AMLPipelines are used to log and account for accounts
that have generated an AML alert. These reviews are conducted for the purpose of
34
'3074
,establishing a basis for the determination of 'a suspicious action(s) and for
Suspicious Activity. Reports (SARs).
Legent defines the term AML Alert ("Alert") as any initial detection or notice of an .
account(s) that has displayed potentially "high risk" activity, suspicious
transactions .or otherwise unusual characteristics as determined by the reporting ...
source of the Alert. Note that an is not a determination of Suspicious '
Activity, but rather a notice that an account should be reviewed to determine if
there is a basis for that conclusion .. ' , , ' .
Upon receiving all Alert, Legent's Compliance/AML staff will first assess and/or'
rate the potential risk associated with the, Alert to determine if immediate action"
needs to be taken. Criter,ia for this rating process 'may involve:
. Implications of activity
Time sensitivity of the risk,
Potential dollar loss
, ,
All Accounts alertedoto Legent's Compliance/AML departm'ent logged into one
. of three AML Acco'unt Analysis Pipelines ("P.ipelines"), based on the initial source
of the Alert:
Standard Pipeline
The' Standard Pipeline ,is an account review s,chedule and log for all accounts
alerted by:
Internal 'Source (Alertsreported(detected by Inter-Legent Departments)
Correspondent Source (Alerts reported/detected by Legent's Correspondent
Firms)' . '
External Source (Alerts reported/detected bY'Non-Affiliated Firms or
. Organizations)
. By order of the Risk Mitigation Committee .
. Accounts that are logged into the Standard Pipeline are eligible for review
immediately.
PARAS Pipeline .
The PARAS Pipeline is an acc'ount review schedule and log for all accounts alerted
by the Proactive Review and Analysis System ("PARAS").
Accourits that are logged into the PARAS Pipeline are eligible for review
. immediately. '
Delayed Pipeline
The Delayed Pipeline is an account review schedule and log for all accounts
alerted by: .
35
'3075
The New Account Alerting Program ("NAAP")
By order oftbe.Risk Mitigation Committee
Recycled Reviews .
Accounts that are logged into the Delayed Pipeline are eligible for review in
approximately 90 days after the date of the initial alert ...
Records in each Pipeline will include the following information:
Account Number
AccountName
Date of Initial Alert
Source of Initial Alert
Description of Initial J\lert
Eligible Review Date
Actual Review Date
Date Suspicious Activity Was Determined (if applicable)
Date a SAR Was Submitted to the Compliance Officers for Review and
Filing (if applicable) .
All accol,J.nts logged into the Pipeline are scheduled for review. at the earliest date
reasonably available. In most instances, reviews are conducted on a "First In.:First
Out" basis; unless the assessed risk and/or reporting time requirements' mandate an.
expedited review. The .review process is comprehensive and includes the analysis
of account opening. dqcuments, trade confirmations, asset transfer records, client
correspondents, wire reports and account . .This analysis will also
include research of all other accounts and transactors associated with the
underlying subject .. The primary objective of the analysis is to identify, isoiate
. and document traI).sactions or patterns of transactions that are indicative of money
laundering, fraud, terrorist financing or other specific threats related to the initial
Alert. Information will be compiled and disseminated into a written report format .
. Researqh from this analysis may result in one of four outcomes:
1.) No Review: If the Suspicious Activity identified is less than or if a
SAR has already been filed on an account for the same alert within 90 days; no
will be conducted.
2.) Review Non-File: Upon reyiew of the final Activity Report, the
Compliance/ AML department may determine that the activity within an account
has legitimate economic purposes and/or a reasonable explanation for generating a
False Alert. In this instance, no action will be taken on the account an,d the
Activity Report will Serve as documentation for the analyst's conclusion.
3.) Recycled Reviews: Upon review of the final Activity Report, Compliance may
determine that the activity in an account is insufficient enough to make an
36
3076
assessment. There may not be enough information at the present time to complete
a proper review and identify a definite AML risk or threat. The. activity within
this account may display "potential" signs of risk, however further analysis is
required to make a full assessment. In this instance, the account will be
. 'recycled,' or placed back into the Delayed Pipeline.
4.) Suspicious Activity Report is filed andlor Law Enforcement is Contacted:
Upon review of the final Activity Report, Compliance may determine that the
observed activity within an account is signi[ican,t and displays unusual transactions
or patterns indicative of money laundering andlor other AML risks. This
determination may be in conjunction with or independent of the initial Alert. At
point, Legent's Compliance and AML staff will take all necessary preventative
,and reporting action necessary, which may include SAR filing, contacting Law
Enforcement andlor action against the account (close account, restrict transactions
or freeze assets). Any account or transaction that is assessed to be an immediate
danger to Legent,. our Correspondent Firm, the Client or another Financial
will be reported to Law Enforcement immediately.
f. Proactive Activity Review
For AML Compliance purposes, but not for other purposes like suitability or sales
practice reviews, it shall be the responsibility of the Operations personnel, and the
Anti-Money Laundering Compliance Officer to review and monitor the activity of
accounts carried by Legent as a clearing firm. Such review and monitoring will be
applied to accounts including institutional,non-institutional and employee
accounts. The account review will be assisted through the use of "exception"
reports generated from Legent's back office service bureau Beta Systems and other
reports as necessary.
Legent's Compliance/AML Department has developed a "Proactive Account Review and
.' Analysis System (PARAS)" that is designed to identify that display significant AML-
Risk-Based activity. The Crystal Reporting Server is used to extract account information and
transaction records from all existing accounts in the BETA system. Based on pre-selected
specifications, the Crystal Reporting Server is able to process information, isolate records and
disseminate results into a cohesive list-report .
. The Crystal Reporting Server processes information during a (rolling) three-month period, and
results are reviewed weekly. List-reports are designed to identify specific "high risk" activity
or transactional patterils; and to exploit accounts that display the most voluminous and frequent
occurrences during a three-month period. Each report is designed to pull and display a list of
the "Top 20" accounts that have demonstrated the most significant occurrences of pre-selected
activitY during a three-month period. . .
The Crystal Reporting System is programmed to group these reports into four specific
"families" of activity and generates a corresponding report for each. The following is a list and
description of each PARAS family:
Wire Familv
37
3077
Designed to Identify Wire Fraud, Asset Layering and Terrorist Financing
3 Month Composite of the Top 20 Accounts That Displayed the Most Significant Wire
Activity in Terms of the Total Value (Dollar Amount) of Incoming Wires During that
Period.
3 Month Composite ofthe Top 20 Accounts That Displayed the Most Significant Wire"
_- Activity in Terrris of the Total Nurpber (Count) ofIncoming Wires During that.Period.
3 Month Composite of the Top 20 Accounts That Displayed the Most Significant Wire
Activity in Terms of the Total Value (Dollar Amount) of Outgoing Wires During that
Period.
3 Month Composite of the Top 20 Accounts That Displayed the Most Significant Wire
. Activity in Terms of the Total Number (Count) of Outgoing Wires During that Period.
3 Month Composite of the Top 20 Accounts. That Displayed the Most SignificantWire'
Activity in Terms of the Total Number (Count) ofIncoming Wires from Non-US
Countries During that Period.
3 Month Composite of the Top 20 Accounts That Displayed the Most Significant Wire
Activity in Terms of the Total Value of Transactions (Dollar Value) of Incoming Wires
from non-US Countries During that Period:
3 Month Composite of the Top 20 Accounts That Displayed the Most Significant Wire'
Activity iIi Terms of the Total Number (Count) of Outgoing Wires to any non-US
Country During that Period. .
3 Month Composite of the Top 20 Accounts That Displayed the Most Significant Wire
Activity in Terms of the Total Value of Transactions (Dollar Value) of Outgoing Wires
. to Non-US During that Period.
Penny-Stock Family .
Designed to Identify Market Manipulation, Pump-and-DumpOperations and Asset Layering
3 Month Composite of the Top 20 Accounts That Display the Most Significant Penny-
Stock Activity in Terms of Total Number (Count) of Penn v Stock Shares Held in'the
Account During That Period. .
3 Month Composite of the Top 20 Accounts That Display the Most Significant Penny-
Stock Activity in Terms of Total Value (Dollar Amount) of Penny-Stock Shares Held in
the Account During That Period.
Stock Journal Family
, Designed to Track the Movement of Assets and Identify Potential Attempts to Layer Assets
38
3078
3 Month Composite of the Top 20 Accounts That Display the Most Sigirlficant In-bound
Stock Journaling Activity'from One LegentAccount tciAnother in Terms of Total
. .
Number (Count) of Shares Moved.
3 Month Composite of the Top 20 AcCounts That Display the Most Significant In-bound
Stock Journaling Activity from One Legent Accourit to' Another in Terms of Total
Value (DoUarAmot1ilt) of Shares Moved.
3 Month Composite of the Top 20"Accounts That Display the Most Significant Out-
. bound Stock Journaling Activity from One Legent Account to Another in Terms of '.
Total Number (Count) of Shares Moved.
3 Month Composite. of the Top 20 Accounts That Display the Most Out-
bound Stock Joumaling Activity from One Legent Account to Another in Tenns of
Total Value (Dollar Amount) of Shares M?ved.
Cash Journal Family
Designed to Track the Movement of Assetsand}dentify Potential Attempts to Layer Assets
3 Month Composite of the Top 20 Accounts That Displ@.y the Most Significant In-bound
Cash Journaling Activity from One Legent Account to Another in Terms of Total
Nuinber (Count) of Shares Moved,
. :, Month Composite of the Top 20 Accounts .That Display the Most Significant Inbound
Cash Joumaling Activity from One Legent Account to Another in TenDs of Total Value
(Dollar Amount) of Shares Moved.
. 3 Month Composite oithe Top 20 Accounts That Display the Most Significant .
bound Cash Joumaling Activity from One Legent Account to Another in Terms of Total
Number (Count) of Shares Moved.
. 3 Month CoIIlPosite of the Top 20 AccouiltsThat Display the Most Significant Out-
bound Cash Joumalfug Activity from One LegentAccount to Another in Terms of Total
Value (Dollar Amount) of Shares Moved.
A Master PARAS report is generated by conducting an inter-family cross-check that identifies.
and isolates those accounts that appear on more than one "family" of reports during a given
analysis period. Any account that appears on more than one "family report" is placed in:the
PARAS Pipeline for review. .
g. New Account A1ertProgram.
The New Account Alert Program ("NAAP") is designed to identify new account openings that
are associated with individuals and entities that maintain: .
An unusually high number ofLegent accounts with multiple Correspondent Firms.
39
3079
' Unrelated business accounts that intermingle identifying information'
Multiple accounts at different addresses (or mUltiple unrelated individuals using the
same address) .'
Accounts that have any other unusual characteristics as determined by Legent's
Compliance/ AML department.
Compliance/AML staff members review new account openings on a daily basis. Any account
identified through this program will be cop.sidered a potential AMI., risk and vyill be
submitted to Delayed Pipeline for future review. .
Additionally, Legent monitors new account openings for 'High Risk Countries.'
To assess country risk qualifications,.Legent Clearing's Compliance/AML Department has
collected data from a number of Federal sources including the Office of Foreign Asset Control
(OFAC), the US Department of State (USDS) and the Federal Bureau of Investigation (FBI).
has been paid to the various interlinked factors that can give rise to money laundering
and terrorist-fmancing problems. These include: '
Major drug producers, either as producing countries or as transit points;'
Major problems with organized crime, of either a domestic or transnational nature;
.. Loosely regulated offshore centers; . .
Countries where corruption is a significant problem;
... Countries where human trafficking is prevalent;
Major Terrorist Harbors.
Legent maintains the High Risk Country List in our internal files.
Our policy mandates that any new account that is opened or is associated with an AML Watch-
List Country will require a 'New Account Alert' email to be sent to the Correspondent firm.;
however, the account will not be placed into the 'Delayed Pipeline' unless it is associated with
one of the other New Account Alerts listed above.
10. Additional Areas of Risk
The firm has reviewed all areas of its business to identify potential money
laundering risks that may not be covered in the red flags and procedures listed
above.
As a clearing firm Legent accepts deposits and withdrawals of both money and
stock and clears stock trades On behalf of our correspondent firm clients. Legent
does not "know the customer" as the correspondent firm does and therefore we
consider our business as a whole to have risk to the firm.
11.' Independent Audit
Legent will use an independent auditing product or consultant to conduct an
independent review of Legent's Anti-Money Lauridering Procedures on an annual
basis. The purpose of such independent review will be to review, test and assess "
40
'3080
the adequacy of and level of compliance with Legent's AML compliance
The results of this review will be reported to the President or designee. Any
recommendations and corrective or disciplinary action will be reviewed with the
EVP of Compliance and the Pre$ident and implemented as warranted.
" " "
12. OFAC I CIP Verification of New Correspondent Firm Principals
An Initial Review Meeting is held by the Credit Review Committee ("Committee") and other
senior managers to discuss the prospective firms' business lines and analyze the regulatory and
financial aspects of the firm. . " "
Compliance will run an OFAC and CIP check on the principals of the prospective firm,
utilizing the Form BD" and the U-4's provided as part of the due diligence documents. The
Compliance Officer ordesignee or Risk Management Officer will present any issues raised
from a review of the prospective firm information and OF AC/CIP check results.
All documentation pertaining to the OF ACI CIP checks will be maintained by the compliance
"department in the correspondent due diligence folder.
13. Employee Training and Continuing Education
All Legentemployees that are involved with any operational or financial aspect of
the business will be required to complete Anti-Money Laundering training. Such
" training may be included in Legent's annual firm element continuing education
program. Training "is conducted by specj,fied Compliance and AML staff and is "
provided on an annual basis. Each required Legent employee is required to attend
one, forty-five minute AML trairiing session per year.
Training is customized to cover topics that are specific to Legent's AML risks.
Attendees are trained to review activity, identify risks and report alerts to
Compliance and AML staff. The training discusses employee's
obligation to report any and all activity andlor transactions that are assessed to be
unusual or suspicious. Attendees are trained on the basic methods used to commit
high-risk transactions including Securities Fraud, Money Laundering, Terrorist
Financing and Tax Avoidance.""
Topics that may be included inthe training are:
Overview of AML risks specific to Legent;
Reporting unusual activity to Compliance and AML;
Case studies; "
Regulatory rules and guidelines;
Examples of identified suspicious activity
All attendees are required to sign a dated attendance form at the beginning of their
session and these records are maintained within the Compliance and AML
Departments.
41
308l
New employees hired at Legent wilfbe required to take an additional AMt
training course via a Pow'erPoint presentation and sign an attestation of completing
the course. If their position is relevant, they. will also l?e required to attend the
AML training presentation.
14. CIP I OFAC and,Employee Related Accounts,
a. CIP/OFAC Verification ,
The following procedures must be foIlowed when an employee. employee-related or associated
member accounts ("accounts") of Legent Clearing opens an account at Legent: '
a. employee must coIIlplete a new account application
b. APrincipals signature is required on all documentation prior to account opening
c.The new accounts department will open the and code as "employee"
d. Compliance will review the CIP IOF ACcheck performed by our third-party vendor
e. if any discrepancies are n,oted, the AML Officer or ceo will be notified immediately
b. Review of Transactions
Transactions in employee and employee related accounts will be reviewed by monitoring
,monthly statements. The Compliance Officer or designee will use TIS Report P317014MA16
, ' for the monthly review.for accounts held at Legent. "
, For' acCounts, TIle Compliance Officer or designee will review monthly (or
, quarterly) statements.
Statements wilfbe revie.wed for activity such as, but not limited to, unusual money transactions,
unusual stock transactions and value in the account Any transactions or Unusual activity will
be noted and dependent upon the situation, further review may be required:
15. Required Books and Records. ,
Legent will maintain a record of each report and used to facilitate its
Anti-Money Laundering program.
, ,
All AML records will be retained for a period of seven (7) years.
16. Who to Contact if you Suspect Suspicious Activity
All Legent employees are encouraged and required to be diligent in watching for
suspicious activity. Anyone who detects or suspects any Money Laundering,
activity must immediately report it to the Anti-Money,Laundering Compliance
Officet. '
Such reports will be confidential in nature and the employee will suffer no
retaliation for making them.
42
3082
In the absence of the Anti-Money Laundering Compliance Officer,such reports
should he made to the EVP of
17. Adopted by Legent President or
As evidenced by his signature below, these Anti-Money Laundering J;>rocedures are
hereby reviewed andado.pted.by Legent Clearing ...
Name-Executive Officer
43
3083
Date
.
3084
800# __ --'-
_ ....

2009 - 2010 AML Responsibilities Agreement
. Legent Clearing LLC
. Anti-Money Laundering Obligations
Legent and Correspondent both acknowledges that it is obligated to comply with FinCEN Rule 352 which requires
... institutions to establish anti-money laundering programs, which at a rrilnimurp must include: the development
of internalpolicies, procedures and controls; designation of a compliance officer; an ongoing employee training
program; and an independent audit function to test p:r:ograms anti-money laundering law, including any future
obligations that may be imposed on Correspondent by law, iule or regulation, to know its customers, their soUrce and
use of funds, and to monitor for and identify suspicious activity.
In accordance with FinCEN's mandate, dated 03/04/2008 and titled: Customer Identification Program Rule No-Action
Position Respecting Broker-Dealers Operating Under Fully Disclosed Clearing Agreements According to Certain
Functional Allocations; Legent's policy is to maintain an agreement under which the functions of opening and
approving customer accounts and maintaining relevant documentation is allocated exclusively to Introducing Firm
and that it is the sole responsibility of the Introducing Firm to comply with the requirements of the CIP Rule,
Legent certifies that we:
Have named an AJVIL Officer responsible for day-to-dayAJVIL functions;
Have written policies and procedures reasonably designed to comply with the Bank Secrecy Act requirements
(such as verifying customer identification for Legent employee and related accounts opened at Legent, hE!S a
process to identify and review potentially suspicious electronic transactions, filing required reports, creating
and retaining certain records, and timely responding to law enforcement requests) and to identify, report and
prevent money laundering; .
Have provided to the Correspondent a third party vendor to assist to comply with Section326 of the USA
PATRIOT Act providing for effective identification and verification of each customer;
Have a process in place to identify and monitor potential high risk accounts and to coordinate research efforts
and the documentation of results between Legent and the Correspondent Firm.
Have processes in place to comply with Section 314 of the USA PATRIOT Act regarding the filing of
Suspicious Activity Reports (SAR-SF); .
Have processes in place to adequately comply with the USA PATRIOT Act sections 314( a) and 314(b) for
registration of sharing and cooperative efforts to money laundering;
Under USA PATRIOT Act section 314(b) Legent may share any information that may be used in the filing of
a SAR-SF, unless prohibited by law;
Have processes in place to adequately comply with the USA PATRIOT Act section 312 for foreign
correspondent bank accounts and private banking accounts;
-Have processes in place to check money transmissions against names on the Office of Foreign Asset Control
list ("OFAC") and appropriate reportlblocklreject matches to designated names; .
Provide initial and ongoing training to applicable employees on anti-money laundering policies and applicable
laws and regulations; and . .
Engage independent auditors, (or otherwise has independent audit/testing completed by qualified personnel)
no less frequently than annually, to review and evaluate Correspondent's compliance with
laundering law and regulations.
Has aprocess in place to evaluate the significance of a potential AML risk and to determine an appropriate
course of action to mitigate that risk which may include independent action against an account in lieu of the
Correspondent firm's decision;-
Reserves the right to take independent action against any account that it assesses to be a significant AML risk.
Such action may.iIlclude rejecting transactions, restricting_activity and/or closing accounts.
200912010
308.5
SUB#____. __
underSigned further certifies to Legentthat the Correspondent: .
. Has a coinpliance person tesponsible for day-t<r.day AML compliance fuhctiops;. ..
'. Has written policies and procedures reasonably designed to comply with the Bank Secrecy Act requirements
(such as verifying customer identification,.,has.a process to identify and review potentially suspic;ious
electronic trlInsactions, filing required reports, creating 8Ild retaining certain records, and timely responding to .
law enforcement requests) and to identify, report and prevent money laundering; .
Has 'Implemented a program to comply with Section 326 of the USAPA TRlOT Act prQvidingfor effective
identification and verification of .each customer and does not rely upon Legent for any aspect of Section 326;
Has processes in place to comply with Section 314 of the USA PATRIOT Act regarding the filing of .
Suspicious Activity Reports (SAR-SF); . .
. lIas processes in place to adequately comply the USA PATRIOT Act sections 314(a) and 314(b) for
. registration of information shaJ:ing and cooperative efforts to deter money laundering;
Under USA PATRIOT Act section 314(b ) Correspondent may share any information that may be used in the
filing ofa SAR-SF and report other suspicious activity, unless prohibited by law;
. Is Willing to comply with all AML related requests made by Legent mcluding monitoring activity within select:.:
accounts, disseminating information th8.t is pertinent to the research and validation of a potential risk and
promptly taking action to restrict and/or close accounts. . . .' .
. Has in place to adequately comply with the USA PA mOT Act section 312 for foreign
correspondent bank accoUnts. and private banking accounts; .
' Will notify Legent prior to opening any accounts that fall within the USA PA TRlOT Act section 312 for
foreign correspondent bank accounts and private banking accounts; .
Has Processes plllce to check money tranSmissions against naines on the Office of Foreign Asset Control list
. ("OF AC") and appropriate reportlblocklreject matches to designatednaines; , .... . . .
. Providesiaitial andongoi;rig training to. applicable employees on anti-money laundering policies 1Uld.
applicable laws and regulations; and '. . '..
. Engages independent auditors, (or otherwise has independent audit/testing completed by qualified personnel)
no less frequently to review and evaluate Correspondent's compliance with anti-money .
laundering law and regulations. , . .
Acknowledges that Legent'reserves the right to take independent action against any acoountthat it aSsesses to
. be a significant AML risk: Such action may include rejecting transactionS, restricting activity and/or closing
accounts. . . '.
. .
. .
Please be reminded that s laundering procedures do not relieve the Correspondent, as a member
fum, of its compliance within the anti-money laundering rules.' .
LEGENT CLEARING LLC
INTRODUCING 'CORRESPONDENT: ..
By:
Firm Name: .,....-__ ____ -'--__ _
By:
Title:
Title:

______________
Date:
--,:. __
200912010
.3086
TabC
Exhibit 94 Q(4) .
(
3087
3088
UNITED WESTERN BANCORP, INC.
ENTERPRISE-WIDE BANK SECRECY ACT
AND ANTI-MONEY LAUNDERING POLICY
Approved by the B o ~ r d of Directors of
United Western Bancorp, Inc.
DATE APPROVED
By Board of Directors of United Western Bancorp:
By United Western Bank Board of Directors
3089
May 3, 2010
April 29, 2010
TABLE OF CONTENTS
. I. STATEMENT OFNEED AND ........................................ : ................................... 3
n
.
POLICY ELEMENTS. . ...................................................................... : ............... 3
A. Authority and Responsibility. .. ..................................................................... ; ............... 3
B. Currency Transaction Reporting ........................................................ , .... ... : ...................... 4
C. Suspicious Activity Reportirig . . .................................. ; ................................................... 4
. .)
D. Funds Transfer Systems ........ ; .................................................. ............................ 5
E. Tax Identification Numbers ............ ; ............ : ..................... ....................................... 5
F. Extensions of Credit . . ......................................................................................... 5
G. 'Cash Sales of Monetary Instruments .............................................................. : .................... 5
,H; Section 314(a), USA PATRIOT Act ........................................................................ : ........... 5
. 1. . Section 314(b), USA PATRIOT Act .............................................................................. ..... 6
J. Money Service Businesses ....................................................................................... 6
K. Training ........ ....................................................... ; ..... ; ............... 6
L. Record Retention .................................................................... : ................... 7
M. Audit ......... ............................................................. : ............... 7
UI.. Conclusion ..... .............................................................. ... : ............... 7
. ADDENDUM A: ANTI-:-MONEY LAUNDERING ............................................... ; ..... ; ............... : ... 7
IV. STATEMENT OF NEED AND PURPOSE ........................ : ........................................... : ....... 7 .
V. POLICY ELEMENTS ........................................................................ : .............. 8
A. Authority and Responsibility ................................................................................. : ..... 8
B. Training ...................................................................... : ................. 8
ADDENDUM B: CUSTOMER INFORMATION PROGRAM (CIP) ............ : ............................. 9
VI. STATEMENT OF NEED AND PURPOSE ............................................. : .......... ; ................... 9
. United Westem Bancorp, Inc.
Bank Secrecy Act Policy .
UWBIBoard approval date: May 3,2010
UWB Soard .approval date: April 29, 2010
1
'3090
Table of Contents (continued)
VII. POLICY ELEMENTS ....................................................... ; ............................... 9
A. Definitions ...................................................................................... 10
B. Authority and Responsibility ..................................................................................... 11
C. Risk Management ....................................................................................... 11
D. Requirements ...................... : .............................................................. 11
1) Identity V erification . . ..................................................................................... 11
2) Lack of Verification ..................................................................................... 11
3) GovermnentList COID.parison (OFAC) ......................................................................... 12
4) Consumer D:ue Diligence and Enhanced Due Diligence .............................................. 13
5) Record Keeping Requirements ..................................................................................... 14
United Western Sancorp. Inc.
Bank Secrecy Act Policy
UWBI Board approval date: May 3,2010
UWB Board approval date: April 29, 2010
2
3091
,
I. STATEMENT OF NEED AND PURPOSE
\
ll.
It is the policy of United Western Bancorp, Inc. ("UWBI") to comply with all
requirements of the Bank. Secrecy Act (BSA) and regulations of the
. Department of the Treasury and the Internal Revenue Service (IRS) relating
thereto. The federal governnient has required that fmancial institutions assist in
the criminal, tax or regulatory-related investigation process of monitoring
transactions to detect illegal money laundering often used to disguise illegal
activities. Through monitoring large currency transactions, the government can
focus on suspicious individuals who deposit or transfer large amounts of
currency .. The Board of Directors (Board) of UWBI understands the necessity
for regulation of btrge currency transactions' and other record keeping

UWBI recognizes the need to establish and enforce enterprise-wide oversight
and. coordination procedures to ensure compliance with the BSA, to
periodically test for compliance with. adopted policies and 'procedures, to
establish respon.sibility, authority and oversight for the implementation of the
policies and procedures, and to provide .training to all applicable affiliates and
subsidiaries of UWBI. The UWBI BSAlOPAC Compliance' Officer
("Compliance Officer") will utilize the content of the most r.ecent version of the
Federal Financial Institutions Examination Council's Bank Secrecy Act Anti-
Money Laundering Examination Manual as its primary resource' and will
provide oversight on an enterprise level for all BSAI AML issues. The Board
acknowledges that the federal government and/or regulators may assess civil
monetary penalties, criminal penalties and other administrative sanctions to
UWBI, its subsidiaries and/or any officer, director,. or employee for any willful
violation of, or negligence in, reporting. or record keeping requirements as
described in the BSA. To this end, the Board hereby establishes the Enterprise-
. Wide Bank Secrecy Act and Anti-Money Laundering Policy.
POLICY ELEMENTS
A. Authority and Responsibility
The Board is the ultimate authority accountable for ensuring compliance
with the laws and regulations that govern UWBL The Board will provide
UWBI management with a BSA policy statement that sets the tone arid
direction of the enterprise-wide BSA program. The Board shall annually
review and approve the BSA policy. .
The Board appoints the Compliance Officer as the person responsible for
overseeing and coordinating the enterprise-wide day-to-day
with BSA. In this capacity the Compliance Officer's responsibilities
include evaluatmgBSAI AML risk, verifying that: required reports are
accurately filed in a timely manner with the appropriate government .
agencies, accurate exemption lists are maintained and reviewed. annually,
record keeping requirements are followed, suspicious activities are
United Western Bancorp, Inc.
Bank Secrecy Act Policy
3
UWSI Board approval date: May 3, 2010
UWB Board approval date: April 29, 2010
3092
reported and a training program is implemented. The Compliance Officer
will also remain abreast of regulatory changes in the BSA requirements
and disseminate information to the appropriate personnel.
UWBI will follow a phased, risk-based approach to ensure full
compliance with BSAI AML. The first phase will include the following
subsidiaries and their subsidiaries if any:
United Western Bank;
UW Trust Company;
Matrix Fimmcial Services Corporation; and
UW Investment Services.
Please note: the subsidiaries listed above will reference the Enterprise
WideBSAlAML Policy as their own. Additional clarification to the
enterprise wide BSAI AML Policy will be handled within the respective
subsidiaries' procedures as needed.
UWBI's Enterprise-Wide BSA Policy has been implemented to
establish an enterprise-wide BSNAML policy for UWBI, the Bank and
other non-bank subsidiaries. ' .
Other subsidiaries will be addressed in this BSN AML policy should
increased activity and relative risk assessment warrant.
B. Currency Transaction Reporting
. The employee conducting the transaction is responsible for preparing the
Currency Transaction Report (CTR) , FinCEN Form 104, any time a
customer deposits, withdraws, exchanges, or transfers (in one business
day) currency .. in amounts greater. than $10,000, or if the branch has
knowledge that multiple transactions, totaling more than $10,000, have
occurred in the same business day. Please refer to specific subsidiary
CTRProcedures. At this time, UWBI does not accept or process any
cash transactions; however, in the event UWBI does receive or process
cash transactions, a CTR will be prepared and filed.
C. Suspicious Activity Reporting
. UWBI has the responsibility to report suspicious monetary activities to
the Department of the Treasury's Financial Crimes Enforcement
Network (FinCEN} UWBI's and certain UWBI subsidiaries' employees
are required to report suspicious activity directly to their department
supervisor and the Compliance Officer. If warranted, a Suspicious
Activity Report (SAR) , Form TDF 90-22.47, will be completed and
forwarded to the Compliance Officer for review and submission. If a
suspicious activity involves insider abuse, UWBI's Internal Audit
Department and the Audit Committee will also be notified. UWBI will
United Western Bancorp, Inc.
Bank Secrecy Act Policy
UWBI Board approval date: May 3,2010
UWB 'Board approval date: April 29, 2010
4
3093
....
. file a SAR for: insider abuse involving any amount, for any knoWn or
suspected crime involving (single or aggregated transactions) $5,000 or
more in funds if there is a' substantial basis for' identifying a possible
suspect, for any known or suspected crime mvolving' (single or
aggregated transactions) $25,000 or more in funds if there is no basis for'
identifyiD.g a possible suspect, and for any single or aggregated
'transaction of $5,000 or more if the suspicion exists that the funds
involved were derived from illegal activity or violations' of the BSA.
Specific instructions for the completion of the SAR can be ohtained from
the Compliance Officer.
D. Funds Transfer Systems
UWBI does not generate . wires on behalf of a third party or customer ..
Those subsidiaries for whom this requirement applies will obtain and
verify all information required by the . BSA aJ?d will retain the
information in the manner and for the period required.
E. TaX Identification Numbers
For subsidiaries whose activities include the opening of new accounts, a
Tax Identification Number (TIN) will be obtained prior to opening any
account. In the case where the applicant has applied for a TIN and'
provides documentation of such, the account can be opened but" the TIN
must be provided within 30 calendar days from the date the account is
opened ..
F. -Extensions of Credit
G.
H.
For those subsidiaries who do provide extensions of credit, each
extension of credit that is not secured. by real property, that
. the borrower's name and address, -loan amount, loan purpose and
date be retained.
Cash Sales ofMonetaty Instruments
For applicable subsidiaries, who offer cash sales of monetary
, instruments, the employee conducting the transaction will be responsible
for completion of the. Monetary Instrument Log. When a customer
wishes to purchase, with currency, one or more monetary instruments
totaling $3,000 through $10,000, certain records will be kept. Refer to
. specific subsidiary procedures for "Purchase of Monetary Instruments.
for Cash over $3000.00 procedures."
Section 314(a), USA PATRIOT Act Cooperative Efforts to
Deter Money Laundering .
Section 314(a) was added to the USA PATRIOT Act to facilitate
information sharing regarding terrorist or money laundering activity with
United Western Bancorp, Inc.
Bank Secrecy Act Policy
3094
5
UWBI Board approval date: May 3, 2010
UWB B.oard approvaldate: April 29, 2010
the federal government, .and other fmancial institutions. Pursuant to
314(a), any federal law enforcement agency investigating
terrorist activity or money laundering may . request to act on its behalf
and solicit information from financial institutions. Once it has received
. proper written certification, it may require a financial institution to
search its records to determine whether, the . information requested
matches that of any accounts.
UWBI 'subsidiaries for whom this requirement is have
established procedures pursuant to Section 314(a) of the USA,
PATRIOT Act,! identifying minimum' requirements for the
cooperation among fmancial institutions in the effort to deter money .
laundering and activity. '
Section 314M, Voluntary Information Sharing Among
Financial Institutions ,
UWBI and its subsidiaries have elected not to participate iB. the voluntary
sharing of information as permitted by the Section 314(b) program.
J. Money Services Business
The term "Money Services Business (MSB) includes the follOwing':
Currency dealers or exchangers who exchange more than
$1,000.00 for anyone customer on any day.
Check cashers who cash checks totaling more than $1,000.00 for
any one'ctlStomer on any day.
Issuers of traveler's checks, money orders or stored value who
issue more than $1,000.00 of any' one or a combination of
instruments for anyone customer on any day.
,. Sellers of traveler's checks, money orders or stored value who
sell more than $1,000.00 of anyone or a combination of
instruments for arty one customer on any day.
Redeemers of traveler's checks, money orders or stored value
who redeem more than ,$1 ,000.00 'of anyone or 'a combination of
instruments for anyone customer on any day.
As required, subsidiaries will determine if ,a person applying for a
product falls within the MSB guidelines, based on the subsidiary written
procedures. If so, the employee processing the application will document
. that the applicant has filed Form 107 "Registration, of Money Service
Business" with the United States Treasury prior to opening an account.
K. Training
United Western Bancorp, Inc;,
Bank Secrecy Act Policy .
It is the' responsibility of the Compliance Officer and department
supervisors to ensure that all employees are adequately trained to
perform their duties and responsibilities with respect to the BSA. To
6
UWBI Board approval date: May 3, 2010
UWB Board approval date: April 29, 2010
3095
t
accomplish this, an ongoing program for personnel in all
of the subsidiaries identified in Phase I has been established,
including new employees,covering the BSA and inoney laundering
detection procedures with examples tailored to the individuals involved.
At a minimum, training will be condl,lcted annually for all employees.
The Compliance Officer will keep all employees informed of changes to
the Bank Secrecy Act, anti .. money laundering and other related laws.
BSA training will be conducted annually for the Boards of Directors for
all affiliates and identified in this policy.
Training may be delivered in with or through presentations
at a meeting, circulation of written materials or any other appropriate
manner. A copy of the materials utilized for training will be retained by
the Compliance Officer and accompanied by record of attendance.
L. Record Retention Requirements
the Compliance Officer wil1.maintain a central CTR and SAR file and a
record of all accounts and customers .exempted from the reporting
requirements of the BSA, in accordance with the BSAPolicy.
M Audit"
1. Independent Testing
Internal Audit, or other qualified independent parties, will test at least
arinually, per the audit schedule, the enterprise-wide systems and
procedures for compliance with BSA requirements and will
communicate resUlts of the review to the appropriate Board and the
Audit Committee. .
DI. . CONCLUSION
The Board understands that successful compliance with the Bank Secrecy Act requires
the cooperative effort of UWBI management and personnel, affiliate and subsidiary
management, operations management and the Compliance Officer. The BSA Policy,
associated procedures and training will be implemented to ensure that all regulatory
requirements are met.
ADDENDUM A: ANTI-MONEY LAUNDERING
IV. STATEMENT .OF NEED AND PURPOSE
. As part of UWBI's overall compliance with the Bank Secrecy Act and. other related
money laundering regulations and the requirements of the Office of Thrift Supervision
(OTS), it is the policy of UWBI to coordinate and provide oversight to affiliates and
subsidiaries "to identify and report to appropriate agencies any suspected money
laundering conducted through the organization. '.
. United Western Bancorp, Inc ..
. Bank Secrecy Act Policy
UWBI Board approval date: May 3, 2010
UWB Board approval date: April 29, 2010
3096
7
Money laundering is diverse and. complex but usually includes one or more of the
followip.g three basic areas:
. Placement. The process of placing unlawful cash proceeds into the Bank by
deposits, wiretransfers, or other means: .
Layering. Separating the pI:oceeds of illegal activities from their origins
'through the use of layers of financial transactions such as converting cash
into traveler's money orders, letters of credit, securities, or valuable
assets such as art, jewelry, or precious .
Integration. Using apparently legitimate tranSactions such as sham loans or
forged or false import/export documents to disguise .il1icitproceeds to allow
'laundered funds to be disbQ1'sed back to the laundering party ..
V. POLICY ELEMENTS
UWBI Will provide oversight and coordination for affiliates and- subsidiaries for money
laundering detection and reporting to cover such areas as large currency transactions,
payable-through accounts, inconsistent account activity, unusual funds transfers,
customer identification program, inSufficient or suspicious information from customers,
and unusual bank-to-bank or employee transactions. These controls focus on customers,
transactions, and geographic locations, which lend themselves more readily to potential
money laundering situations.
A. Authority and Responsibility
The Compliance Officer is responsible for daily coordination and monitoring of
compliance within this policy and for the filing of suspicious activity reports
with appropriate agencies. All UWBI employees will be instructed to report
suspected money-laundering situations to the. Compliance Officer,who is also .
re!)ponsible for reporting' such sitUations and other ongoing compliance matters
in this area to the subsidiary Board of Directors.
B. Training
At a minimum, training will be conducted annually for all employees identified
in this policy. The Compliance Offic.er will keep all employees informed of
changes to the Bank Secrecy Act, anti-money laundering and other related laws.
All new employees will also receive training at the time of their initial
employment.
Training may be delivered in conjunction with or through presentations at a
meeting, circulation of written materials or any other appropriate manner. A
copy of the materials utilized for training will be retained by 'the Compliance
Officer and accompanied by a record of attendance
United Western Bancorp, Inc;
Bank Secrecy Act Policy
UWBI Board approval date: May 3, 2010
UWB Board approval date: April 29, 2010
8
3097
ADDENDUM B: CUSTOMER INFORMATION PROGRAM (CIP)
VI. STATEMENT OF NEED AND PURPOSE
The USA PATRIOT Act was signed into law on October 26,2001. Title III of the Act,
captioned "International Money Laundering Abatement and Anti-terrorist Financing
Act of 2001", adds several new provisions to the Bank Secrecy Act (BSA). These
provisions are intended to facilitate the prevention, detection, and prosecution of .
international money laundering and the fInancing of terrorism. Section of the Act
sets forth minimum standards for fInancial institutions that relate to the identification
and verification of any person who applies to open an . account. ComplianCe with this
law was mandated as of October I, 2003.
. .
It is the policy of UWBI and subsidiaries to comply with the USA PA1RIOT Act,
Customer Identification Program, by implementing procedures for the
verification of any person seeking to open an account, maintain records of the
information used to verify the person's identity; and determine whether the .person
appears on any lists of known or suspected terrorists or terrorist organizations provided
to financial institutions by any government agency.
VII. POLICY ELEMENTS
UWBl's policy is to insure prpper adherence to the provisions and intent bfSection 32()
of the USA PATRIOT Act (the "Act") regarding the requirement for UWBI and
appropriate. subsidiaries to implement reasonable procedures to:
1. Verify the identity of any person seeking to open an account, tathe extent
reasonable and practicable; .
2 .. Maintain . records of the information used to verify the person's identity,
including nanie, address, and other identifying information; and
3. Determine whether the person appears on any lists of,knoWn or suspected
terrorists or terrorist provided by. any government
These directives require the implementation and maintenance of identification,
documentation, verification; and record keeping procedures to ensure:
I. Compliance with state and federal regulations;
2 .. Adherence to safe and sound banking practices;
3. A decreased risk of becoming a victim of illegal activities undertaken by a
customer; and .
4. Protection of the reputation and strategic position ofUWBI and certain of its
subsidiaries with its customers .
As such, it is the authority, b,asis and platform for the development, communication,
implementation; interpretation and enforcement of appropriate and applicable operating
policies and procedures.
Unlted Western Bancorp, Inc.
Bank Secrecy Act. Policy .
UWBI Board approval date: May 3, 2010
UWB Board approval date: April 29, 2010
9
3098
A. Definitions
For the purpose of this policy and its procedures, the listed terms have the following
definitions:
Account
Bank
Customer
Person
A formal ongoing banking relationship for financial tr!UlSactions,
including, but not limited to deposit accounts, credit and loan accounts,
safety' deposit bo:xesor other safekeeping services, cash management
services, services, and trust services. The term "account" does
not include any produc;t or service where a formal banking relationship is
not established with a person, including non-customer check-cashing,
transfer; or sale of a check or money order. Also excluded from this
definition are accounts that a. bank acquires through an acquisition,
merger, purchase of assets; or assumption of liabilities.
A financial institution that is subject to regulation by a Federal functional
regulator, and all credit unions, private banks, and trust companies that
do not have a Federal functional regulator.
Any. person that:
1. Opens a new account;
2. Opens a new account for another individual who. lacks legal capacity,
such as a minor; or
3: An individual who opens an account for another person defined
below, other an individual.
The term "Customer" does not include another bank, or a person that
maintains an existing account with the Bank, provided that the bank has
identified the person the extent required fn this policy.
Individuals, corporations, partnerships, trusts, estates" joint stock
companies, associations, syndicates, joint ventures, unincorporated
organizations or groups, certaiIl Indian Tribes, and all entities cognizable
as legal personalities.
u.s. Person A United States citizen, or a corporation, partnership, trust, or person
(other than an individual) is established or organized under the laws
of a State or the United States.
Non-U.S. Person
A person that is not a United States "person".
Politically Exposed person (PEP) . '
United Western Bancorp. Inc ..
Bank Secrecy Act Policy
It is the responsibility of Bank personnel, during the customer identity.
verification process, to determine whether a customer is a Politically
Exposed Person (PEP). A PEP is a person identified in the course of
normal account opening, maintenance or compliance procedures to be a
"senior foreigri political figure", any member of a senior foreign politieal
10
UWBIBoard approval date: May 3. 2010
UWB Board approval date: April 29. 2010
3099
figure's "immediate family", and any "close associate" of senior foreign
political figure. .
The Compliance Officer should be notified of PEP account openings,
and subsidiary Senior Management should assess the degree of risk
associated with opening of the account.
Entity/Non- Individual Entity .
A non-individual such as corporations, partnerships, trusts, estates, joint
'stock companies,' associations, syndicates, joint ventures, other
unincorporated organizations or groups, and certain Indian Tribes.
, lB. Authority and Responsibility
The Board of Directors maintains the ultimate responsibility to ensure the proper
management of the UWBlenterprise-wide' Customer Identification Program ("CIP"),'
and any policies and procedures pertaining thereto. The Board shall approve these
policies at least annually. '
The, Board has 'charged Seriior Management with the responsibility of determining the
necessary course of action to ensure that adherence to appropriate laws and regulations
are managed in an effective and consistent manner for, the entire organization. By
Resolution of the Board of Directors, the Compliance Officer is designated to supervise
the overall management of the enterprise-wide CIP.
The appointed Compliance Officer shall report directly to the Audit Committee
regarding the Bank's CIP. It is the responsibility of this individual to be familiar with
the requirements under the USA PATRIOT Act, Section 326, and remain abreast of any
regulatory changes regarding its requirements.
Officer will' maintain CIP related policies, procedures and training
guidelines, and provide ongoing training sessions for the entire organization. '
C. Risk Management
UWBI, as part of its overall risk management program, has reviewed each area in which
risks associated' with regulatory customer identification requirements exist. This
evaluation specifically covers areas where new account relationships are created, and
where subsequent controls and procedures are in place to minimize such risk. A copy of
this evaluation is maintained in the Compliance Department.
p. Requirements
'1. Identity Verification "
UWBI and certain subsidiary personnel must at a minimum obtain the following
information to validate the true identity of an individual or entity seeking to
open an account; or for anyone added as a signatory to an account, prior to
establishing a new account relationship:
United Western Bancorp, Inc.
Bank Secrecy Act Policy
UWBI Board approval date: May 3, 2010
UWB Board approval date: April 29, 2010
11
3100
a Name;
-b .. For individuals, date of birth;
c. Address: .
i. Individual- residential street address and, if different, mailing
address.
ii. Entity - for persons other than individuals, principal place of
business and, if different, mailing address.
d. Identification Number:
1. A U.S. Person - a U.S. taxpayer identification number (e.g;,
social secUrity number, individual taxpayer identification
number, or employer identification number); .
ii. A Non-U.S: Person - one or more of the following:
A taxpayer identification number;
Passport number and country of issuance
Alien identification card nuniber; or
Number and country of issuance of any other government.:.
issued document evidencing nationality or residence and
bearing a photograph or similar safeguard.
e. Documentary and Non-Documentary Identification
. i.. For specific documentary and non-documentary identification
requirements, refer to appropriate subsidiary written New
Accourit Procedures and Customer Identification Program:
Procedures.
ii. Existing customers seeking to open a new account or who
become a signatory on an existing business account do not have
to . meet the criteria outlined in this. policy, provided that the
subsidiary has previously verified the customer's identity in
accordance with this policy, and continues to have a reasonable
belief that the true identity of the customer is known. .
2. Lack of Verification
UWBl's policy is to not allow subsidiary accounts to be opened or maintained
for aD. individual or business in the event personnel cannot properly validate the'
true identity of a customer. .
Note: Personnel should forward to 'the Compliance Officer, information
regarding a suspicious situation where a customer's identity could not be
properly identified during account Qpening procedures. The Compliance Officer
will determine if a SAR should be filed.
3 .. Government List Comparison (OF AC)
It is the responsibility of UWBI and subsidiary personnel to determine whether a
customer appears on the current list of known or suspected terrorists, terrorist
: United Western Bancorp, Inc,
Bank Secrecy Act Poliey
UWBI Board approval date: May 3, 2010
. UWB Board approval date: April 29, 201.0
12
3101 .
organizations or known money launderers provided to the Bank by any federal
government agency.
On September 18, 2009 UWBI implemented the International ACH Transaction
("IAT") rules.which were created to align National. Automated Clearing House
Association ("NACHA") rules with the Office of Foreign Assets Control
(OF AC) compliance obligations required by the Bank Secrecy Act.
As an Originating Depository Financial Institution (ODFI), UWBI and
subsidiary personnel will evaluate all Inbound IAT transactions for OF AC
compliance, including all parties to the transaction and all remittance data.
As a Receiving Depository Financial Institution (RDFI), UWBI and subsidiary
personnel will review the accuracy of all incoming IAT transactions for OF AC
compliance.
Please refer to Deposit Operations procedures for compliance requirements
regarding IAT transactions ..
If a positive "hit" occurs, whether it is in the form of an applicant's name or that
of an existing customer, the Compliance Officer should be notified immediately.
Upon notification, OF AC will be contacted and the Compliance Officer will
follow all federal directives issued in connection with the transaction.
4. Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD)
As part ofUWBl's BSAfAML compliance program, CDD procedures will be
maintained that are reasonably designed to:
Facilitate accurate risk analyses
. Protect against exploitation by potential launderers
Isolate clients who pose additional risks
As part of the process UWBI will identify and verify the identity of beneficial owners
of an account, as appropriate.
For example, CDD procedures may include the following:
Determining whether the customer is acting as an agent for or on behalf of
another, and if so, obtaining information regarding the capacity in which and
on whose behalf the customer is acting.
Where the customer is a legal entity that is not publicly traded in the
.United States, such as an unincorporated association, a private investment
company (PIC), trust or foundation, obtaining information about the structure ...
or ownership of the entity so as to allow the institution to determine whether
the account poses heightened risk.
United Western Bancorp, Inc.
Bank Secrecy Act Policy
UWBI Board approval date: May 3, 2010
UWB Board approval date: April 29, 2010
13
3102
Where the customer .is a trustee, obtaining information about the trust
. structure to allow the institution to establish a reasonable understanding of the
trust structure and to determine the provider of funds and any persons or
entities that have control over the funds or have the power to remove the
trustees.
With respect to accounts that have been identified by an institution's CDD
procedures as posing a heightened risk, these accounts will be subjected to an
enhanced due diligence (EDD) process that is reasonably designed to enable
compliance with the requirements of the BSA and AML regulations.
5. Record Keeping Requirements
It is the policy ofUWBI that all applicable subsidiaries are to retain the
following documentation related to the identity verification of customers based
on current record retention policies:
a. All identifying information provided by a customer after the date the
account is closed or becomes dormant, including the original
opening address;
h. A description of any document that was relied upon pursuant to this
policy that clearly evidences the type of document and any
identification number it may contain;
POLICY REVIEW
c. A description of the methods and results of any measures
undertaken to verify the identity of a customer pursuant to this
policy;anq.
d. A description of the resolution of any substantive discrepancy
discovered when verifying the identifying information obtained.
This policy shall be reviewed at least annually for update and modification.
Notwithstanding the foregoing, all regulatory directives will supersede currenfpo!icy and
procedures for the duration of said order or instruction
United Western Bancorp, Inc.
Bank Secrecy Act Policy
UWBI Board approval date: May 3, 2010
UWB Board approval date: April 29, 2010
3103
14
:TabC
Exhibit 94 Q (6)
3104
)
3105
)
TabC
Exhibit 94 Q (6)(i) .
3106
,j
Sent By: NASDj
4:21PM;
Page 1
NASD .
reo: . Ellen M. Wheeler, Esq .
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:


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From:
!Phone:
Pages:
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Sherri Lofton for Jeffrey At Ziestnan. Esq.
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(816) 411-4519 . (SI6) 802-4711
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8 !Date:

Novemher 22,:2005

.

Legent ClearingLLC . !
NASD Action ID No. E0420040084-t2
.
.' L..-__________________________ .. :. _________ 00 ____ , _____ ... __
iI1ls1'ax tr'IInsl11lltalls IJIr1C11y COnTIdontlsl and 18
intent/ltd f1:lf the par&on Of ol'\llirnzatlon 10
....nOln H 1$ If youl'lav$ nQl ",...ivtld
all P;!l1Mof this fal( plea" GIIIl 816 4:<:1 5700.
1 20 West' 2th Street
Suite 900
City, MO
641Q5-1930.
tel 816 421 5700
{;ill 6164215029
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Exhibit 94Q (6)(ii)
3108
Sent By: NASDj
To:
Re: .
8164215029;
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.. NASD
Nov-22-05 4:21PM;
LETTER OF ACCEPTANCE, W AlVERANDCONSENT
. . .
Department of Enforcement
NASD .
Legent Clearing LLC
Member (CRD No. 117176)
NO. 11:042004008+-02 . . .
i'

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2




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Yo
, . . .
Page 2
Pursuant to NASD Procedural Rule 9216. Clearing :LLC (Legent) submits this Letter of
Acceptance. Waivet and Consent (A WC) purpose a of the alleged rule
vioiations described in Part Ilbelow. 'fhis A}\'C is submitted on the condition that, if accepted., NASD .
will not bring any future actions against Lesen!: alleging violations based on the same factual findings.
. ... l . . .
. Legent understands that: ...
1.
2.
3.

of this AWe is voluntary fmd will not this matter unless and until it has been
reviewed and accepted by NASD's of .Enforcement and the Nationai Adjudicatory
Council (NAC) Review Subcommitte; or the Office of l>isciplinary Affairs (ODA) . pursuant to
NASD Procedu.ral Rule 9216; E
. s
If this A WCis not accepted. its will not t!e used as evjdence to prove any of the
allegations against Legent; and


If accepted:
;
;:
a.
b.
c.
d.

This A we will prui of Legent's pennanl)nt disciplinary record and may
. considered in any future actiotsbroUght by or any other regulator against Legent; .
This A we . will . be made through public disclosure program in
response to public inquiries atfout Legent's disciplinary record;
. .. . .... .
. f. . ... .
NASD may make a public "nouncement this agrct:ment and the subject
matter thereof in accordance with NASD Procedural Rule 8310 and 0-2; and
.

Legent may not take any or make or pCrmitto be made any puhlic statement, ..
incilld.ing in regulatory tilingsior otherwise, denymg. djrecUy or indirectly. any allegation
in this A we or create the ittls,tession that the Awe is without factual basis. Nothing in
this provision affects testimonial obligations or rights to take legal or factual
. positions fnlitigation or othetiegal proceedings:inwhicn NASD is not a party.
. I . .

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3109
Sent By: NASDj. 8184215029; Nov-22-05 4:21PM; Page 3


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" .
Letter or Acceptance, Waiver and Consent E0'420040084-02
Department of Enforcement v. Legent 1.I.e
J . .
" ::

. f. " .
LegenL also understands that itsexJXtience in the securities industry and disciplinary
history may be factors that will be co+sidered in decidiJ!ig whether to accept this AWe.
That experience and history are as foutv.:s: .'
Legent has been a member ofNASD June 4.2002; :.Legem acts as a clearing broker.
offering its services to introducing on a fully disclosed basis from its main
office located in . Omaha, Nebraska. fLegent not heen the subject of prior .formal
diSCiplinary action by NASD. .


i .
Y. WAIVEROIt PROCEDURA.Ji RIGHTS
. i .
Legent specifically and voluntarily waivos the followingnghts granted under NASD's Code of
&
. Procedure: .

. . i'
A. To have a Fonnal Complaint issued spfcifying the altega;tionsagainst
. i. ," . "
B. To be notified of t.he Formal and have tho opportunity to answer the allegations in
Writing;


C. To defend against the allegations disciplinary before a hearing to havc a
written record of the hearing made and to have a written decision and ..
,- .

I). To appeal any such decision to tht NAC and then: to the U.S. SL."Curities and Exchange
Commission a U.S. Court of Appcljlls.

.
Furthermore; Legent specifically and volun.taf11y waives any right to claim bias or prejudgment of the
. GcncralCounsel,. the NAC. or an)' member pf the NAC, in with such person's or body's
participation in discussions regarding !he tcnfls and conditions' of this AWe,vr other consideration of
this AWe, including acceptance 01' rejection of this A we.
.
. f.. .
Tn addition, Legent specifically and waives any right to claim that a person violated the e.l:
parte prohibitions ofNASDProcedural orthe separation of functions prohibitions of NASD
Procedural Rule 9144, in connection with sucJ1 person's or body's participation in discussions f(lgal'ding
the terms and conditions of this A we. or otIttr consideration of this A we, including its acceptance. ot
rciection.
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sent By: NASD; 8164215029;
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Nov-22-05 i:21PM; Page 4
1 .
Letter of Waiver and Consent
,Department or Enforcement v.Legent Clca-!ing LLC ' .'
Pagel '. . :
i
A.

f . .
, II. ACCEnkNCE AND
, Legent hereby ac.ceptsllnd consents, or denying the a.llegations or findings, '
and solely for the purposos ofthis pr<*.eedingand any other proceeding brought by or on behalf
of NASD; or to which NASD is a prior'loa heafing and without- an adjudication of any
issue onaw or tact, to the enlryofthe following findings byNASD: ' , ' ,
I.
2.
3.
4.

I '.
Customer Protection - .twservcs and of Securities
, SEC Rule 15.:3-3 sfd NAS ConduH Rule2110
On the mornings'of NovembeJ. 25. 2003, 21; 2004 and February 3, 2004, Legent
made net deposits in the of $6,O()O,OOO, $14,000,000 and $5,600,000,
re.speclively, into'its Reserve titnk account.:' .'
I. ,
These deposits, however. comprised in of funds drawn on Legent's '
Joan agreement with the S8.mf bank tha.t maintained Legent's operating account (from'
which the deposits totM Resefve bank account were made). '
, ':
.. .
The draws on' the revolver loa, were not recorded on Legent's books until the end ofihe
bu.siness day on 25. 2003, January 21, 2004 and February 3, 2004.
.' . , , "
Accordingly. Legent's operatij'lg account was in a net deficit position ilt the time afthe '
deposits to the Reserve Bank '
. , ... .
Such acts, practices and condtct constitute separate and dist.inctviolation!\ of SEC Rule
,lSc3-3 'and NASD Conduct RIlle 2110 by Legent. ,'..'
,

,.

1'ran etion . , .
ASD S stems and to' rams RQles "130 and 6620
and NASI! Conduct Rule 2110
. ..
:ii
5. . For the time period of I, 2002, January 31,2004, for 43 transactions
that were reviewed for propcf trade reporting and order ticket information, the NASD
.stafT found t.he following violations: '
t
(a)
, (b)
(c)
(d)
<
2S transactions did have dacumeritation Yidencingthe actual execution
time; .
'.
.
:l8 transactions were on an >agency basis but reported as principal
.

fou.r transactions werd reported 90 after execution and did not
the time; : ' " ,

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three OTC were improperly '<bunched,"
'

i





'3111
Sent By: NASD;
8164215029 ;
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Letter of Aeeepbinee,Waiver and
DepartmeDt or Ealoreement v. Legent Clea;ng LLC
Page' 4 i

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Such, acts, practices' and co*-tconstitute separate and distinct violations of NAsD .
Systems and Programs Rules 63,30 and 6620. and'NASD Conduct Rule '2110 by Legent .
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For the lime period. of 1, 2002 tbroligh January 31, 20M, for 47 corporat.e
bond transactions that were "teviewed for proper TRACE reporting and order ticket
information.the following vioqmons were detect"!!: . .
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(a) 47 were ,ported using Legent's MPl;D instead of the introducing
MPID:f . .... : ..... ..... .
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(b) 20 I.nmsactions rcp.ort.ed minules of the time of excc'ution (or .
one hour and 15 niinutfs prior to I, 2003); . .
, .: . . .
(e) . five werer"orted by the party, hut not reported by t..egent;.
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(d) two transactions were due to data errors ..
. . .
A review of an additional b.o corporate boiacJ .order revealed that seven
'. transactions Wc:tcnotroported'!o TRACE. . : . ...
. .
Such acts . COl141cL constitute separate and distinct violations of.NASD
Systems and,Programs Rule 6$0 and NASP'CollductRulo 2110 by Legent. . . .
. .. 1 . ': . .
Reports., Sales or PUl'ch*s .
'M BRuleG-14 :
to.. . For the time period ofNoveJer I. 2002. January 31. 2004, for 46 municIpal'
transactions that were reviewelt for proper reporting and order ticket information
7
11.
the following violations were ected: :. . .. ..
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(a) . 46 municipaJ trans!lcti4ns. were reported the wrong broker symbol; and
.
(b)
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nine municipal transactions were: reported late.
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Such acts, practices and constitute scJjarale and distinct violatioIUI of MSRB
Rule 0.14 by Legent. ' . '.: ..
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Legent also consents to the imposition.kt maximum, 'following sanctions:
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Sent By: NASD; 8164215029;
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a fine of $40,000. .
A.
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Date Jeffrey:N. Sime, President
. Reviewed by:
Counsel for Legent
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utter of AecehtaBce., Waiver and CORSellt *0. E04Z00400s4-&2
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Accepted by NASD:
Date.
I Oil behalt of the Director: of ODA,
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l Jeffrey. A. Zies"an, Regional COBnsel .
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ELECTION OF PAYMENT FORM
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Respondent Legent intends to pay fine proposed in. Section Il of the Leucr of Acceptance,
Waiver and Consent by the following method 'check one):' .
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A pers'onal check or bankche4lc for the fuU amount;
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Credit card authorization amount; 1. :
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The installment payment pl40 (only if apprQ'Ved by NASD staff and the National
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Jeffrey:N. Sime, President
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10nty Mastercard and Visa are acccpt.cd fof pa.yment by cre!:ih card. If this Ol)tion is ohosen, the
appropriate forms will be mailed to you, with an invoice, by:NASD's Finance Department. Do not
inClude your credit card number on this fo,;n.
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..
4-hl,! payment plan is only a"ailaEfe for tines of $5.000 or more. Certain interest payments,
minimum initial and monthly payments, and:pthC'rrequirements apply. You mtlst discuss these terms
with NASD statf prior to requesting this method of payment.: .. .
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Exhibit 94 Q (6)(iii) .
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3116
FINANCIAL INDUSTRY REGULATORY AUTHORITY
LETTER OF ACCEPTAl'!'CE, WAIVER AND CONSENT
NO. 20.07007133001
To: Department.ofEnforcement
Fmancial Industry Regulatory Authority(FINRA)
Re: Legent Clearing LLC, Respondent
Member Firm
CRD No. 117176
Pursuant to NASD Rule 9216 of FINRA's Code of Procedure, Legent Clearing LLC (Legent) submits
thiS Letter of Acceptance, Waiver and Consent (A WC) for the purpose of proposing a settlement of the
alleged rule violations described below. This. AWC is submitted on the condition that, if accepted,
FINRA will not bring any iilture actions against Legent alleging violations. based on the same factual
findings, described herein. .
I. ACcEPTANCE AND CONSENT
A. Legent hereby accepts and consents, without admitting or denying the fmdings, and
. solely for the purposes .of this proceeding, and, any 'other proceeding brought .by or on .
behalf of F1NRA, or 'to which FINRA is a' party, prior to a hearing and' without an.
adjudication of any issue oflaw to the entry of the following by FINRA:
Background .
Legent haS been 'a member of FINRA or its pn::tiecessor; NASD, since June 4, 2002. Legent acts
as a clearing broker offering its services to introducing broker/dealers on a fully disclosed basis'
from its main office located in Omaha, Nebraska. As a clearing fum, Legent perfonns ,order
proceSsing; settlement and record-keeping' functionS for introducing broker/dealers. These
introducing broker/dealers do not maintain back-office to perfonn these functions .
. Relevant Prior DiscipJin'ary History .
Legent has been the subject of one formal disciplinary action by FINRA relevant to this matter.
See A WC No. (fmingLegent $40,000 for, among other things, SEC Rule .15c3-3
violations).
Overview
Legent failed to develop and implement a written anti-money laundering (J\Mi.) program
reasonably designed to. achieve and monitor its compliance with the requirements of the Bank
Secrecy Act during the period of February 1, 2004 through November' 30, 2006 (the relevant
AML period). Legent's AML program was not tailored to the Firm's busiIiess and did not.'
adequately provide documentation of the Firm's AML activities. Among other things, Legent's .
'written AML program did not adequately consider the money risks posed by its
introducing finns, some of which were conducting high risk AML activities, such as penny-stock
liquidations. Further, while Legent experienced rapid growth during tlfe relevant AML period, it
3117
Letter of Acceptance, Wavier and Consent
Clearing Ltc
Page2 .
did not provide adequate resources to its AML program to account for this growth. As a .
conseqtience. Legent failed to file a Suspicious Activity Report (SAR) in a number of instances in
which there did not appear to be any legitimate. purpose for the transaction. Moreover, while in .
some instances Legent may have discussed some oftbese transactions internally, it did not
conduct an adequate investigation to' determine that the transactions were not in fact suspicious .
. 'In addition," Legent failed to document any discussions it might have had or the reason for any
decision that it might have made not to file a SAR.
also failed to .provide adequate AML training program. for new and existing empioyees.
For new employees, Lege,nt's training program was limited to ad hoc instruction from
departn;leD.tal superviSors and a two-page document explaining money laundering. For existing
employees. Legent's training program was limited to a short PowerPoint presentation at the
firm's annual compliance meeting.
Through these deficiencies, Legent failed to develop and implement an adequate written AML
program, in violation ofNA8D Conduct Rules 3011(a), 3011(b), 3011(e) and 2110, and MSRB
RuleG-41.
.In addition, from at least June 2004 through October 2006 (the relevant Reg. T period), Legent
improperly extended credit by permitting cash account to use the proceeds of unsettled
sale transactions to . fund subsequent purchase and sale transactions. Legent also improperiy
extended credit by permitting customers to use the proceeds oftmsettled sale transactions to meet
the requirement that all securities purchased in cash accoUnts be paid for within five days of
purchase date, regardless of whether and \Vhen the securities were subsequently sold. Legent also
failed to have adequate supervisory systems and procedures to ensure compliance with
RegulationT. As Ii result, Legent .violated Regulation T, Parts 220.8(a) and (b), promulgated
pursuant to Section 7 of the Securities Exchange Act of 1934 (the Exchange Aqt), and NASD
Conduct Rules 2110 and 3010. .
Finally, Legent failed to prepare an accurate reserve computation calculation in February 2007
and April 2006. This violated SEC Rule 15c3.;.3 .and NASD Conduct Rule 2110. .
Facts and Violative Conduct
Legent's AML Violations
Background
Legent became a member of FINRA in 2002. At the beginning of the relevant AML period,
Legent provided clearing services to nine introducing fums. . By the end of the relevant AML .
period, a little more than two and a half years 'later, that number had grown to 50, in locations -
across the United States, including New York City, Chicago and 'Los Angeles.
Some of these' introducing f1Il1is engaged in activities that were high risk for AML purposes, such
as 'penny-stock transactions, liquidations of proceeds, and frequent joumaling ,activity
2
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Letter of Acceptance, Wavier and Consent
Legent Clearing LLC
Page 3
various accounts which apparently were unrelated. Legentprovided clearing services to some
firms that, in addition to engaging in these high-risk activities, also had significant disciplinary
backgrounds. .
For example, Legent cleared for Franklin Ross, Inc. (Franklin Ross). Franklin Ross was the
subject oftwo enforcement proceedings brought by FINRA during 2001-2002, including one that
charged Section 5 of the 1933 Securities Act and supervisory violations. Also during the relevant
AML period, FINRA brought an action against Franklin Ross in March 2006, alleging certain
. omissions by the firm in a private offering. Pursuant to that proceeding, Franklin Ross was
suspended from participating in any securities offerings for one year and fined $20,000, and the
finn's president was suspended for 10 days from acting in any supervisory capacity. FINRA
expelled Franklin Ross in 2001 for serious AML violations. . See FINRA Press Release,
November 5; 2007,
Legent also cleared for Salomon Grey Financial Corp. (Salomon Grey). The SEC charged
Salomon Grey, and its President, Kyle Rowe, with fraud in connection with a market
manipulation scheme, and sought a permanent injunction in a September 27, 2002 Complaint
fIled in the United States District Court for the District of Utah. In August 2004, FINRA found in
a formal disciplinary proceeding that Salomon Grey and Rowe violated SEC Regulation M, along
with NASDConduct Rules 2710.and 2110. Salomon Grey and Rowe were filled $100,000, and
Rowe was suspended in all capacities for two weeks. Ultimately, FINRA expelled Salomon Grey
and barred Rowe in April 2006 for AML and other serious supervisory violations. See FINRA
Press Release, April 27, 2006. .
Still another introducing fInn that had a disciplinary history, and for which Legent provided
clearing was BlackWell Donaldson & Company (Blackwell Donaldson). From 1999 to
2002, prior to the relevant AML period, Blackwell Donaldson was the subject .of at least three .
separate regulatory enforcement actions, one.in which the fIrm was fined $50,000 by
the State of Oregon for, among other things, serious supervisory deficiencies relating to micro-
cap stock transactions. In June 2006, FINRA brought an action against Blackwell Donaldson's
Chief Executive Officer and Anti-Money Laundering Compliance Officer for his role in the
firm's serious AML violations that occurred from March 2004 to August 2004, and suspended
Wm for one year from actmg in any supervisory capacity. I .
NASD Conduct Rule 3011 and MSRB Rule G-41
NASD Conduct Rule 3011, which became effective on April 24, 2002, requires FINRA members
to develop and implement a written AML program reasonably designed to achieve and monitor
compliance with the requirements of the Bank SecreCy Act, 31 U.S.C. 5311, et seq., and the
regulations promulgated thereunder. Section (a) of this Rule directs member fIrms to establish
and implement procedures reasonably designed to detect and cause the reporting of certain .
suspicious transacti09-s. Section to establish and implement procedures
reasonably designed to achieve compliance with the Bank Secrecy Act. Section (e) requires fIrms
I Blackwell Donaldson a Form BDW in March 2005.
3
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Letter of Acceptance, Wavier and Consent
Legent Clearing LLC
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to provide relevant on-going training to appropriate personnel. FINRA has issued numerous
communications to its members regarding the requirements of Rule 3011. See Notice to Members
(NTM) 02-21 (April 2002), 02-47 (August 2002),02-50 (August 2002), 02-78 (November 2002),
02-80 (December 2002), 03.,34 (June and 06-07 (February 2006).
MSRB Rule 0-41 contains similar requirements for those broker/dealers engaged in municipal.
securities transactions. .' .
NASD Conduct Rule 3011(a) req.uires FINRA members to establish and polides and
procedures. "that can be reasonably expected to detect and cause the reporting of' suspicious
transactions. On July 2, 2002, the Department of Treasury issued the regulation .requiring
suspicious transaction reporting for broker/dealers, 31 CFR 103.19(a)(1). It required 'all
broker/dealers tofile Crimes Enforcement Network(FinCEN) "a report
of any suspicious transaction relevant toa possible violati!)n of law or regulation." Treasury's
release stated that broker/dealers should determine whether activities and transactions raise
suspicions by looking for "red flags.". NTM 02-47 discussed Tr:easury's release, set. forth the
provisions of the final AML rule, and provided various examples of "red flags." This NTM
further advised broker/dealers. of their duty to flle a SAR to report certain suspicious transactions?
. Further, NTM. 02-21 emphasized each firm's duty to detect "red flags" and, if it detected any,
''perform additional due diligence before proceeding with the transaction." NTM 02-21, p. 10. .
Legent's Failure to File SARS.
Or Investigate Suspicious Activities
During the relevant AML period, Legent failed to file SARS in numerous instances as described
below. Legerit cleared certain penny-stock transactions that presented patterns that necessitated,
at a minimum, further iIivestigatiOil by Legent. More importantly, in many instances these
patterns should have led to a SAR filing. In these instances Legent did not undertake
further investigation, did not consider filing a SAR, and did not file a SAR. SeeNTM 02-47. pp.
2-3' (outlining circumstances pursuant to which broker/dealer must file a SAR); see also III the
Matter qf Park Financial Group; Inc .. and Gordon C. Cantley, SEC Rel.No. 56902, Admin. Proc.
File No. 3-12614, p.4 (SEC Dec. 5,2007) ("'The failure to file a SAR by 31 C.F.R.
103.19 is a violation of Section 17(a) of the Exchange Act and Rule 17a-8 thereunder."). Also
significant, to the extent Legent undertook any investigation, or considered' filing a SAR but
ultimately decided not to do so, Legent failed to such investigation or decision.
2 the' final rule, a broker/dealer must report a transaction on Form SAR-SF if 'the transaction
involves $5,000 or more, is conducted or attempted to be conducted through the brokeIldealer and
appears to serve no business or apparent ... ,,. NTM 02-47, p.2. The obligation to file a
SAR may ar;i.se from a single transaction or from a series of transactions that forma suspicious pattern of .
activity. !d. NTM 02-47 quoted FinCEN's release on the final rule relating to SARS, stating, "In its
release adopting the final rule, FinCEN explicitly clarifies that 'if a broker/dealer determines a series
of transactions that would not independently trigger the suspicion' of the broker/dealer, but that taken
together, form a suspicious pattern of activity, the broker/dealer must file a suspicious transaction
report.'"
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Letter of Acceptance, Wavier and Consent
Legent Clearing LLC
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. Examples of these failures by Legent are described below.


































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Legent's Failure To Timely File SARS
While . Legent filed some SARS during the relevant AML period, in several instances it did so
many 'months after the inception of suspiCious conduct. For instance, in one SAR filing Legent
identified that, the suspicious activity had commenced nearly 16 months before the SAR was
,filed.
Such. delay in filing SARS is inconsistent witli guidarice provided by FinCEN:and FlNRA. '. As
discussed in NTM 02-47, p. 4, "Broker/dealers must file Forin SAR-SF within 30 days of
becQming aware of the suspicious transaction .. If the broker/dealer is unable to identify a suspect,
the rule provides an extra 30 days for filing the Form. SAR-SF.", See also The SAR Activity
Review, Trends, Tips & Issues. Issue 10. p. 45 2006) ("The time period to file a SAR starts'
when the institution, in the course of .its review or as a .result of other factors, reaches the
conciusion iD. which it knows, ,or has reason to suspect, that the actiVity or transactions' under ,.
review meets one or more of the definitions of suspicious activity. The 30-day ... period does
not begm until an appropriate review is conducted and a determination is made that the
transaction under review is'suspiCious' within the meaning of the SAR regulations.").
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Letter of Acceptance, Wavier and Consent .
Legent Clearing LLC .
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Legent's foregoing conduct violated NASD Conduct Roles 3011(a} and 2110 and MSRB Rule G-
41. .
Legent'sAML Progmm and Written Procedures Were Inadequate
Legent's AML program and written procedUres were inadequate Jor a number of reasons. For
instance, the procedures were not specifically tailored to Legent's particular business model.
FINRA NTM 02-21 emphasiZed that finns should not use a "one-size-fits-atI" approach in
crafting an AML program and procedures. Moreover, the resources. that Legent committed to its
AML prograin did not keep pace with the finn's rapid growth the relevant AML period.
Some of the introducing firms for which Legent .provided cleating services engaged in a
significant number of transactioris that were high risk for AML purposes, such as penny-stock
transactions, liquidation of proceeds, and frequent journaling actiVity among various accounts
which were apparently unrelated. Some of these same finns had securities industr)' disciplinary
histories.
As a clearing fum, Legent was obligated to consider . laundering risks posed by the
introducing firms with which Legent did business, including iriformation Legent obtained in the
course of its relationship with the intr04ucing finn. See FinCEN Guidance, Fm-2006-G009, p.l
(May 10, 2006) ("In a relationship with an introducing finn, a clearing finn must consider the
money laundering risks posed by the introducing finn, including anyinforn;tation . the
finn acquires about the account base. of the introducing finn in the ordinary course of its business
. and through the application of its anti-money laundering poliCies, prOCedures, and controls .. ') ..
Legent did not adequatdy consider these risks in its AML program, or in actual practice.
FlNRA has provided examples.of'red flags" for money launderingincIuding, but not limited to,
. the following: .
The customer engages 'in excessive journal entries between related accounts
without any apparent business purpose, or,
The customer, for no apparent reason or in conjunction with other 'red flags,'
. engages in tranSactions involving certain types of securities, such as penny
stocks.... .
NTM 02-21, pp. 10-11.
Legent's AML program and written procedures did not adequately identify these "red flags" .and
risks. Instead, for much of the relevant AML period, Legent simply imported text from FJNRA' s
AML program Small Finn Template and did not tailor the Template to its business. By doing so, ..
Legent did not account for the uniql,le AML risks it faced. .. .
Legent updated its AML writteJ? procedures near the end of the relevant AML period, in August
2006, and for the.frrst time expressly recognized in them one of the major AML risks it faced as a
clearing finn - the joumalingand transferring of assets by its introducing firms' customers.
10
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Letter of Acceptance, Wavier and Consent
Legent Oearing LLC
Pagell .
While the August 2006 procedures acknowledged this risk., they did not adequately address the
surveillance of introducing finns' customer accounts for suspiciousjoumaJing activity.
Further, Legent's AML program anq written procedures were inadequate because they lacked
many necessary details. FINRA has provided guidance to the industry, directing that AML
written ."must and implement controls and written procedures that explain .
. the procedures that must be followed, the person responSible for carrying out such procedures,.
how frequently such procedures mUst be performed, and how compliance with the procedures
should be documented and tested." FINRA NTM 02-21. p. S.
For instance, each of the finn's written procedures in effect duririgthe relevant AML period
generally required the use and review of exception reports to. monitor account activity. However,
.. until August 2006, none of thewritten procedures actUally identified or described any of the
exception reports to be reviewed, nor Gid they describe the process to be used in reviewing these
reports. Several versions required documentation of the review without describing how or where
the review was to be documented, while other versions did not require documentation at all. The
procedures did responsibility to speCific people, but instead reqt,1ired the review to be
doneby unspecified "Operations personal [sic], Traders, and the Anti-Money Laundering
Compliance Officer." Legent'sDecember.200S independent audit discovered this deficiency and
recommended adding Specific details and descriptions, but Legent did not follow the
recommendation until near the end of the relevant AML period. -. . . - .
Legent's AML procedures aiso did not specify bow Legent's department to use ""desk
procedures" created by the departments. The "desk were essentially step-by-step
guidelines on how the departments were to conduct their functions to comply with broker/dealer
regulatory. requirements. . the "'desk procedures" were not tailored to address AML
issues, . and were not reviewed or drafted by Legent's Anti-Money Laundering Compliance
Officer (AMLCO). .
Legent'sforegoing condu"t violated NASD Conduct Rules 3011(a)-(b) and 2110 and MSRB
Rule G-4l. .. .
The Finn's AML Training Program was Deficient
Legent's AML training program dl1ring the relevant AML period was deficient. At the beginning
of the relevant AML period, Legent did not provide any uniformAML traiQing for its new
employees. "Instead, Legent relied on its departmental supervisors to give new employees
whatever AML traiIiing a particular supervisor deemed necessary. There were no controls or
procedures in place to that AML was provided. Legent's AMLCO did not take
. part in the training that the departmental supervisors were to their new employees. .
In approximately DeCember 200S, Legent began givingnew a two-page d9CUIllent that.
provided.a brief explanation of the Patriot Act, money laundering and AML. New employees
would receive this two-page document, along with other new employee forms and documents, on
their first day of work at Legent. There still was no training provided by or supervised. by the
AMLCO or compliance department, or a senior officer of Legent. FINRA has advised meinher
11.
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Legent Clearing,LLC
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firms that "[t]he AML employee- training should be developed under the leadership of the AML
Compliance Officer or senior management" NTM 02-21, p. 14. The foregoing process for
trafuing new employees existed through the end of the relevant AML period, and into January
2007.
As for existing employees, Legent's training occurred at 'its annualcompliance meeting. and
consisted of a short PowerPoint presentation made -by the AMLCO: Legent provided no
additional, focused, AML training to employees who had specific AML responsibilities. This
level of training was not sufficient, given the types of business 'for which Legent was providing
clearing services.
Legent's foregoing conductviolatedNASD Conduct Rules 3011 (e) and 2110 and MSRB Rule G:-
41. "
Legent's Regulation T Violations
The Application of Regulation T to Cash Accounts, .
Legent violated Regulation T by failing to ensure (i) that securities were fully paid for prior to
sale and (ii) that securities-were fully paid for :within two days of settlement.
In Cash Accounts, Payment for Securities is Required Prior to Sale
Section 7(c) of the Exchange Act provides that:
It shall be unlawful for any member of a national securities' exchange or any
broker or dealer, directlyorindirectly, to extend or maintain credit or arrange for
the extension or of credit to or for any cUstomer - on any security
(other than an exempted security) '" in contravention of the rules and regulations
which the Board of Goyemors of the Federal Reserve System' ... shall prescribe.
Part 220.8(a) of Regulation T proyides in relevant part:
(a) . Permissible ,Transactions. In a cash account, a creditor, may:
(1) Buy for or sell to any customer any security or other asset if:
(i) There are sufficient funds in the account; or
(ii) The creditor acceptS in good fitiththe customer's
agreement that the customer will promptly make full
cash payment for the security or. asset before selling it
and "does not contemplate selling it prior to making such
payment.
(2) Buy from or sell for any customer any security or other asset if:
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Letter of Acceptance, Wavier and Consent
. Legent Oearlng LLC
Page 13
(i) The security is held in the account; or
(ii) The. creditor accepts in good faith the customer's
statement that the security is owned by the customer or
the customer; s principal, and that it will be promptly .
deposited in the account ....
In transactions between a principal disclosed clearing firm and an introducing. broker. the cle8rlng
firm is responsible for RegUlation T compliance, because it is considered the creditor that extends
the credit. See Fed. Res. StaffOp.,2 Federal Reserve Regulatory Services, Part 5-615.971 (Apr.
19, 1991). Under Regulation T, securities may be purchased in a cash account only if the
customer has sufficient funds in the account to pay for the purchase, independent of the prOCeeds
to be received from the subsequent sale of those securities. See, e.g., Fed. Res. Staff cp .. 2
Fe.deral Reserve .Regulatory Services. Part 5-616.11 (May 27, 1994). Additionally, the sale of a '
security to. pay for another securitY purchased on same date does not give rise to sufficient .
funds in the accoilnt by the applicable deadline. See, e.g., Fed: Res. Staff Op., 2 Federal Reserve
Regulatory Services; Part 5-616.14 (Feb. 18, 1999). See also Fed. Res. Staff Op., 2 Federal
Reserve Regulatory Services, Part 5-616.15 (Jan. 6,2000); Ft?d. Res. StaffOp., 2 Federal Reserve
,Regulatory ServiCes, Part 5-615.971)(Apr.19,1991). . ,
A Federal Reserve addressed a situation in'whicli a customer sells Stock A on
Day I, buys Stock B on Day 2, $ells Stock B on Day 3, and then buys and sells Stock C on day 5.
Fed. Res. StaffOp., 2 Federal Reserve Regulatory Services, Part 5-616.18 (May 12, 2003). 'The
fact pattern assumed that all of the individual purchases cost less than the "account balance" and
that Stock A had been paid . for' before .it was sold on Day LThe Board staff stated that .
Regulation T two methods for paying for a securities purchase in a cash account: (1) a
customer who has sufficient funds in the account,on trade'date may purchase securities and sell
, them at any time; and (2) a customer who does not 'have sufficient funds in the account on trade
date may purchase securities with the understanding that such securities will not be solc;} until,they
are paid in full. The opinion emphasized that sale proceeds that had not been, received do not
constitute "sufficient funds." ' .,
Under the facts presented in the foregoing example, the staff opinion stated that the sale of Stock
Bon Day 3 was inconsistent with the agreement that the customer will promptly make full cash
payment for the security or asset before selling it and 'does not contemplate selling it prior to
making such payment. The opinion also concluded that the sale of Stock B on Day 3, before the
cash to pay. for it was received, should put the broker/dealer on notice that the ,customer has
engaged in a transaction ,that is not permissible In the cash account. Theopirtion further $tated
that the purchase of Stock C on Day 5 would therefore also have to be made pursuant to section
. 220.8(a)(lXii), with the result that the sale of Stock C on Day 5 was also a transaction that is not_
, pennissible in the cash account. The opinion noted that this interpretation did not set forth a new
legal proposition, explainirig that for 'over 50 years, . Regulation T has required customers to pay
for securities in.a cash account before selling them. '
13
3129
Letter of Acceptance, Wavier and Consent
Legent Clearing LLC .
Page 14
NASD issued Notice to Members 04-38, Credit Ex:tensionlDay Trading Requireme11ls (May
2004) stating as follows:
[Federal Reserve Board] make clear that a customer who sells a
security on trade date to pay for another security purchased on that day does not
. have "sufficient funds in the account" on trade date for purposes of Reg T
Section 220.8(a)(1)(i). Rather a customer must make full payment for each
separate purchase transaction in a cash account without regard to the unsettled
proceeds of' securities sold. If a member firm plans to accept the unsettled
proceeds of a securities sale as' payment for securities purchased, the transaction
must be conducted in a margin account, subject to the regulations affording
protection to customers who trade in margin accounts. [Citations omitted]
In Cash Accounts, Payment for Securities is Required within Two Days of Settlement
Part 220.8(b) of Regulation T provides the time periods when payment for securities purchase
must be made and states in relevant part:
(b) Time periods for cancellation or liquidation -
(1) Full cash payment. A creditor shall obtain full cash payment for .
customer purchases: .
(i) 'Within one payment period of the date:
(A) Any nonexempted security was purchased.
In turn, Part 220.2 defines "'payment period" to mean "the number of business days in the
standard securities settlement cycle in the United States ... plus two days:'
In a Federal Reserve Board Staff Opinion dated September 30, 1986, the staff addressed the
question of whether a customer can "use sale proceeds of one security to pay for the purchase of a.
different security, so long as the trade date of the sale is on or before the settlement date of the
purchase transaction." Fed. Res. Staff Op.: Part 5-615.94 (Sept. 30,1986). The staff answered
the question by writing, "No, since the sale transaction will not settle until after settlement of the
purchase transaction, there are insufficient funds in the account on settlement date. In addition,
an extension of time could not be granted by a self regulatory organization in this case because
there is no acceptable reason for an extension under Section 220.8(d)." Id.
The Violations
During the relevant Reg. T period, Legent effected improper trades by pennitting customers to
sell securities in cash accounts before making full cash payment in violation of Regulation T on
numerous 'occasions. In one month alone, there were 77 violations, and the practice continued for
29 months. Additionally, Legent failed to properly restrict accounts from trading subsequent to
this activity.
14
3130
Letter of Acceptance, Wavier and Consent
Legent Clearing LLC . .
Page 15
During the relevant Reg. T period, Legent also failed to ensure that, for each transaction in a cash .
account, full cash payment was made within .two days of the settlement. of such purchase,
regardless of whether or when the was sold. SpeCifically, .the firm to fully and
properly monitor whether proceeds from the sale of one security would settle before the payment
deadline set forth in Part 220.8(b) of Regulation T for the purchase of a different The
finn's procedurespennitted it to improperly 'consider the purchase of one security in an account
with insufficient cash to timely paid for as long as the settlement of proceeds from the sale of
another security of equal or greater value was pending at the time of the payment deadline. Part
220.8(b) of Regulation T prohibits such consideration of unsettled proceeds as caSh payment.
Legent failed to adequately sUpervise transactions in securities in cash accounts to determine (i)
whether securities were fully paId for prior to sale and (Ii) whether securities were fully paid for
within two days of settlement. Additionally, Legenfs Written supervisory procedures did not
adequately address the provisions of. Regulation T as described above. As a result, customers
were pennitted to sell securities before they were fully paid. .
. , .
The foregoing acts, practices and conduct by Legent constitute separate and distinct violations of .
Regulation Tand NASD Conduct Rules 2110 and 3010. . . . .
Legent's SEC Rule 15c3-3 ViolatioDS .
.. .
Legent failed to make an: accurate reserve computation as of February 28, 2007. Legent failed to
include an amount in Item :3. of the reserve fonnula, thereby understating total credits by
$4,783,010.91. Based on that Legent withdrew $2,000,000 from its special reserve
.acc6uilt on March 2. 2007. Legent subsequendy recomputed the reserve computation as of
. February 28, 2007, and determined that the excess of total credits OVer total debits was
$6,056.683.75. This created a special reserve account deficiency of $4,406,374.32 and; after
some additional modifications were made to the comput.ation, the total special reserve account
deficiency was $4,434,754.32.
Legent also failed to make an reserve computation as of April 28, 2006. ThiS related to
the f1IlIl having unduly concentrated margin balances in three customer accounts. Legent
excluded these items from the computation on the basis that they related toa commingled
customer loan, which was a credit item in the reserve formula. Legent. erroneously offset the
required reductions in debits by attempting to demonstrate that the securities pledged were
included as collateral for a commingled loan. However, under the circumstances, .individual
loans needed to be established fqr each account to demonstrate that the debits were directly
related to a credit item in the reserve fonnula. Further, the firm failed to obtain approval from its
designated examining authority to permit the concentrated debit balances to be included in its
computation formula. This reduced customer debits by $13,880,931, and led to a reserve'.
computation deficiency of$5,842,596 as of April 28. 2006. .
Legent's conduct violated SEC Rule 15c3-3 and, consequently, NASD Conduct Rule 2110.
B. Legent consents to the of the following l!8nctions:
15
3131
Letter of Acceptance, Wavier and Consent
Legent Clearing LLC
Page 16
A censure and monetary fine of $350,000.
Legent further consents to ad9pt and implement policies and procedures reasonably
designed to ensure compliance with Parts 220.8(a) and 220.8(b) of Regulation T and to
have an Officer of the finn certify to FINRA in writing no later than sixty (60) days after
Notice of Acceptance ofthis AWC that the firm has adopted and implemented such
policies and procedures. Upon written request showing good cause, the FINRA staff may
extend the certification deadline.
Legent specifically and voluntarily waives any right to claim that Legent is unable to pay,
. now or at any time hereafter, the monetary sanctions imposed in this matter. Legent has
submitted an Election of Payment fonn showing the method by which Legent proposes to
'paythe fme imposed ..
The sanctions imposed herein shall be effective on a date set by FINRA staff.
II. WAIVER OF PROCEDURAL RIGHTS
. Legent specifically and voluntarily waives the following rights granted under FINRA's Code of
Procedure:
A. To have a Formal Complaint issued specifying the allegations against Legent;
B. To be notified of the Formal Complaint and have the opportunity to answer the
allegations in writing;
C. To defend against the allegations in a disciplinary hearing before a hearing panel, to have
a written record of the hearing made and to have a written decision issued; ~ n d
D. To appeal any such decision to the National Adjudicatory Council (NAC) and then to the -
U.S. Securities and Exchange Commission and a U.S. Court of Appeals.
Further, Legent specifically and voluntarily waives any right to claim bias or prejudgment of the General
Counsel, the NAC, or any member of the NAC. in connection with such person's or body's participation
in discussions regarding the terms and conditions of this AWC, or other consideration of this AWC,
.including acceptance or rejectionofthisAWC.
Legent .further specifically and voluntarily waives any right to claim that a person violated the ex parte
prohibitions of NASD Rule 9143 or the separation of functions prohibitions of NASD Rule 9144, in ..
connection with such person's or body's participation in discussions regarding the tenus and conditions
of this AWC, or other consideration of this AWe, including its acceptance orrejection.
16
313.2
Letter of Wavier and Consent .
Legent Oearing LLC .
Page 17
10. OTHER MATTERS
Legent understands that:
A. ", Sub.mission of this A WC is voluntary and will not resolve this unless and until it
has 'been reviewed and accepted by the NAC, a Review of the NAC, or the
Office ofDiseiplinaty Affairs (ODA), pursuant to NASD Rule 9416;
B. . If this AWC is not accepted, its subinission will not be used as evidence to prove any of
the allegations against Legent; and
. C. If accepted:
1; this A we will become part of Legent's permaQent disciplinary record and may .
be considered in any future action.s brought by FINRA' or any other regulator
against Legent; . .
.2. this AWC'\vill'bemade available through FJNRA's public disclosure program in
. response to public inquiries about Legent's disciplinary record;
-. ..
3. FINRA may make a public announcement concerning thisagreeDient and the
subject mattertllereofin accordance with-NASD Rule 8310 and IM-8310-3; and
4. Legent may not take any action or make or permit to be made. any public
statement, including in regulatory f!.lings or otherwise, denying, directly or'
indirectly, any finding in this AWC or create the impression that the AWe is
without factual basis. Legent may not take ani position in any proceeding
brought by or on behalf of FINRA, or to which FINRA is a party, that is
inconsistent with any part of this A WC. Nothing in this provision affects
Legent's right to take legal or factual positions.in I itigation or other legal
in which FINRA is not a party.
D. Legent may attach a Corrective Action Statement to this AWe that isa statement of
demonstrable corrective steps to prevent future misconduct. Legent understands.
that it may 'not deny the charges or make any statement that is inconsistent with the A WC
in this Statement. This Statement does not constitute factual or legal findings by FINRA,
nor does it reflect the views of FINRA or its staff. .
17
3133
Letter of Acceptance, Wavier and Consent
Legent Clearing LLC
Page 18
Legent certifies that Legent has read and understands all of the provisions of this Awe and has been
given a full opportunity to ask questions about it; that Legent has agreed to its provisions voluntarily; and
that no offer, threat, inducement, or promise of any kind, other than the terms set forth herein and the
prospect of avoiding the issuance of a been made to induce Legent to submit it.
Reviewed by:
. 6
. LEGENT CLEARING LLC
By:
Title:
18
3134
Letter of Acceptance, Wavier and Consent"
Legent Clearing LLC
Page 19
by FINRA:
Date
19
'3135
Signed on behalf of the Director of ODA.
by delegated authority
Katherine A Malfa
Vice President and Chief Counsel
FINRA Department of Enforcement
180 i K Street, NW
SIl1 Floor
Washington, DC 20006
(202) 974-2853
A. Ziesman
.Senior Regional Counsel.
FlNRA, Kansas City District
120 West 12th Street, Suite 800
Kansas City, MO 64105
. (816) 802-4712
ELECTION OF PAYMENT FORM
Respondent Legent intends to pay the flne set forth in the attached Letter of Acceptance,
Waiver and Consent by the following method (check one):
A personal, business or bank check for the full amount;
o Wire transfer;
o
Credit card authorization for the full amount;3 or
o
The installment payment plan (only if approved by FINRA staff and the Office of
Disciplinary Affairs).4 .
Respectfully subluitted,
. LEGENT CLEARING LLC
Date: __
7 I
By:
7 . /
" (leo
Title:
30nly Mastercard, Visa and American Express are accepted for payment by credit card. If this
option is chosen, the appropriate forms will be mailed t9 Respondent Legent, with an invoice by
FINRA's Finance Department. Do not include the credit card number on this fonn.
installment paymenr"plan is only available for fmes of $5,000 or more. Certain interest
payments, minimum initial and monthly paynients, and otherre:quirementsapply. Respondent
Legent must discuss these terms with FINRA staff prior to requesting this method of payment.
3136
,.TabC
Exhibit 94 Q (6)(iv)
. 3137
._'.
Financiallndu$try Rf'gulatorl Authority
January 5, 2009
Certified Mail #7008 11400001 9152 2447
Return Receipt Requested
LEGEm CLEARING
Attn: Craig Black. EVP, CCO
9300 UNDERWOOD AVE, SUITE 400
OMAHA, NE 68114
Re: Request for Payment of Fines and/or Costs
Dear Mr. Black:
Invoice Number: 08-04-1026
As you are aware, the following monetary sanctions were imposed against you or your finn in connection with .
Complaint Number 2007007133001:
, ..
Fine:
$350,000.00
. Total: $350,000.00
Payment. in fuU, as elected on the Election of Payment FonD, is due within ten (10) business days from the.date of this
letter. Enclosed please find a list of methods for payment of fme(s) andlor costs. If applicable, satisfactory proof of
restitution must be provided to the District Office or Market Regulation Department promptly; FINRA Rule 8320
requires prompt payment of all monetary sanctions, including restitution or disgargement, and provides for the expUlsion
of a firm's membershii' in the Association and/or revocation of an individual's for failiire tapay such
monetary sanctions. . .
Checks should be made payabJe to FINRA and mailed with the attached .copy of this letter to: FINRA, P.O. Box 7777-
W8820, Philadelphia, PA19175-8820 (Attention: Fines & Costs) in the enclosed envelope. Please write the complaint
number2007007133001 on the check to ensure proper credit to your account. Incases of extreme urgency, send your
remittance by courier or overnight delivery to FINRA; W8820, c/o Mellon Bank Room 3490, 701 Market Street,
Philadelphia. PA 19106 - Attention Fines &. Costs.
Should any questions regarding this letter, please contact me at (240) 3&6-5352 ..
Sil'\.cerely. .
'/I .)
. f . /. .1 . .
l()d:'>...(('tJt{J')( {LI
. William B Wilson
Supervisor - Disciplinary Fines Collections
Finance
cc: F!NRA District Office
cc: JOSEPH D EDMONDSON. JR . ESQ.
do Foley & Lardner, LLP,
3000 K Street, NW,Ste 500
Washington. DC 20007-5143
3138
r .;40 3?6 5392
.:: .10
Tab,C
Exhibit 94 Q (6)(v)
3139
VIAFEDEx
Jeffrey A. Ziesman
Regional Counsel,
NASH'
120W. 12th Street, Ste. 900
KansasCity, MO 64105
March ii, 2005
'Re:, LegentqtearmgLLC; Exam No. E04040084 "
J
Dear Mr. Ziesman:
, FOLEY & LARDNER LLP
ATTORNEYS AT LAW
, 321 NORTH CLARK STREET
, SUITE 2800 '
CHICAGO, IL 60610-4764
312.832.4500 TEL
312.832.4700 FAX
www.foley.com
WRITER'S DIRECT LINE
312.832.5197
EMAIL
CLIENT IMATTER NUMBER
0611130102
In your letter November 12, 2004, you indicated that NASD staff had made
!l detennin!ltion to recommend that be brlJ,ugl1t againSt Legent:
Clearing Corp. ("Legent"). While y(),ur, letter provided Legent with an opportunity to ,make a,
Wells submission stating why' d,isciplinary action not be brought, Legent did not t8.ke advantage
of this opportunity, because Legent,accepted,the offer ,of made'bY'NASti staff. , As'
you are aWare, however, the' settlement offer was withdraWn and NASD conduc;ted
investigation of the allegations set forth, in your November 12, 2004 letter. ,Ii is, our
understanding that' you 'have ,comPleted, OJ; are' nearing completion 'of your investigation., ':
Accordingly, we would ,like to take this opportunity to state why disciplinary action should not
be brought against Legent or any of its officers or '
No Disciplinary Action is Warranted for the Alleged Violation' of SEC ,Rule 15c3-3
and NASD Conduct Rule 21iO. ' " , '
I.
Legent fully recognizes the'impo:rta.i1ce of SEC Rule 15c3-3 and its requirements,
and accepts full respcinsibility for 'the' mistake it made with respect to certain of'those
requirementS. Not every mistake or rule violation, however, rises to' the level of Sanctionable
c()nduct. In this case, disciplinary action is not warranted because, among other reasons, ,to the
, extent Legent may have violated the technical re'quirements of Rule Legent's violation
was simply the, resuk of not recording intra-day advances on its line of credit at Hmis
Bank "While Legent is in, no way trying to miniinizethe importance of Rule 15c3-3 qrthe net'
capital requirements, there is no eviderice, or an: even an' allegatio'n, 'that Legent ever dropped,
below its net capital requiremen(or in any way jeopardized the position of any its ' "
NAsD staff should not disciplinary action against Legent or any of its, '
officers or employees in light of the nature of the alleged violation of SEC Rule '
15c3-3, particularly where Legent had no intent to violate Rule Legent made no attempt
to, conceal the alleged violation, Legent, iminediately put in place procedures to prevent any
reoccurrence, Legent has fully cooperated with NASP staff including voluntarily consenting to a
BRUSSELS
CHICAGO
DETROIT
JACKSONVILLE
LOS ANGELES
MADISON
MILWAUKEE
NEW YORK ,
ORLANDO
SACRAMENTO
SAN DIEGO
SAN DIEGO/DEL MAR
3140
SAN FRANCISCO
SILICON VALLEY
TALLAHASSEE
TAMPA
TOKYO '
WASHINGTON, D.C.
WEST PALM BEACH
011.1249067.t
I FOL'EY
Jeffrey A. Ziesman
March 11, 200S
Page 2 '
number of restrictions on its business, and Legent did not benefit and no investors were hanned
by the alleged violation.
A. Legent's Procedure for Deposits in Accordance with SEC Rule
15c3-3., '
Legent's procedures for making deposits into its Reserve Bank Acce..unt complied
with the spirit of SEC Rule lSc3-3 and, as NASD staff has acknowledged, had Legent simply ,
, recorded advances, it received from Harris Bank on an intra-day basis, Legent would have fully
complied with all aspects of the Rule. ,- ,
, Rule ISc3-3(e)(l) requires Legent to a "Special Bank Account
for the Exclusive"Benefrt of CUstomers" separate from any ,other 'of Legent's bank'accounts.
Legent must maintain in this Reserve Bank AccoUnt an' amount not less than the amount
'calculated in the formula's'et forth inJ7C.F.K 240.1Sc3-3a. Ruie ISc3-3(e)(3):-
requires that Legent determine on a wef?kly monthly basis what amount, if any, is required to
. be deposited into. the Reserve Bank Account 'in order to ,maintain an amount not less than its
JSc3-3a net capital computation. If a deposit is requir,ed, it; must be, made no later,than one hoUr '
after the opening ofbankfugbusiness,on the second dayfollowmg the,day'oithe net-,
capital computation. , ' .
, ,Legcmt its.ReserVe Bank: AccoUntat First Nationai Bank of
(Testimony df J. Sime, at 3 L) If, after its ISc3-3a net capital computation, tegent was
required to make a deposit to its Reserve Bank Account, that deposit was typically made from' an
operating account Legent held, at Harris Bank. '(Id. at 37:) , ','
In' addition to its operating at Harris Bank, Legent also mahItained a $40 '
'million-line of credit -with ;Harris Bank. (ld. at 49-S0) Through this line of credit, Harris Bank
would ,advance Legent funds as was necessary to cover withdrawals from Legent's operating
account 'such as wire transfers, settlement through DTC, etc. (Id. at 49-S2; Letter from J. Sime to'
, J. Greening, Testimony Ex. 11.) In 'other words, in the event a withdrawal would result' in
Legent's operating account having a deficit balance, Legent would draw d<;>wn its line of credit to
cover the deficitHan;is Bank would advance funds to Le'gent in an amoUnt up to Legent's
unused line of credit and its available collateral. For example, if Legent requested a wire transfer
of $10 million in order to make a required deposit into its Reserve Bank Account, but oilly had
$6mi,llion in its operating accoUJ;lt, Bank would determme the unused amount of Legent's
line of credit and confIrIIi that Legent had sufficient collateral to cover the line advance. lf
was available credit and sufficient collateral, Harris would advance $4 million to Legent ,and
make the wire transfer to the Reserve Bank Account.
Legent did not record these draws on its line of credit on an intra-day basis. (I d.)
The amount advanced. by Harris Bank would change throughout day, based on the constantly
changing balance, in Legent's ,operating account. (Testimony of J. Sime, at 99-101.) Legent
would liot record these intra-day 'changes in the 10ah amountandwould only record the amount
, of any loan at the close of business. (Id.) For example, if Legent had $10 million in its'account-
011.1249067'.1
3141
'=FOLEY
Jeffrey A. Ziesman
M ~ c h 11, 2005
Page 3
at startofa day, made a wire transfer of$15 million at 10:00 am and received a Wire transfer of
$4 million at 2:00 pm, the amount,drawn on the line of credit would drop from $5 million to $1
million. Legent would record a $1 million loan at the close of business, rather than a $5 million
loan at 10:00 am and a repayment of $4 million at 2 pm.
, Because Legent did not record these intra-day loans, on certain occasions it
appeared on Legent's books as ifLegent's operating account maintained a deficit balance at the
time a deposit was made to'the Reserve Bank Account. Legent, however, was not c;>verdrawn on
its account on any of those occasions and, thus, never maintained a: deficit balance. Indeed,'
, Harris Bank did not send Legent an overdraft notice, 'charge Legent an' over-draft fee or
, otherwise indicate that Legent was overdrawn on its account., (ld. at 47.)
B. 'rhe NASD's Exam in February 2004.
In February 2004, the NASD conducted an examination (the "Exam") ofLegent; ,
In the course of the exam, NASD staff identified five instances where a wire transfer to the,
Reserve Bank Account r,esulted in Legent's books reflecting an intra':day' defiCit' balance in
Legent's operating account at Harris Bank. In each of these instances, however, Harris Bank '
advanced funds from the line of credit to cover the deficit balance.' ' , , '
, 'NASI> staff raised its concerns with Jeff Sime, Legent's Fmancial arid Operating'
',Principal at that tirQ.e, and directed him-to' an SEC Staff interpretation entitled "Reserve Deposit
Made From, Overdrawn' Account'; (the "Inteipretation"). The Interpretation provides, in part, as
follows: ,,-
Checks deposited or funds wired to the Reserve Bank Account that
create' overdrafts or increase existing overdrafts in other ,bank:
accounts do not qualify as beina-fide deposits. Consequently, a
'broker/dc;aler cannot meet its deposit requiremen.ts by utilizing
such overdrawn funds. In order for a deposit to be, considered
bona-:fide, the'bank account fr<?m which the fuIi.ds were wired must
have had funds on deposit per the' books of the broker/dealer in
excess of the wired amount at'the time the wire was sent.
(SEC Staff Interpretation, Testimony Ex. 3.)
, NASD staff indicated, that, because the intra-day loans were not recorded on
Legent's books; Legent's acc,?unt was technically overdrawn at the tinie the wire was sent to the
Reserve Bank Account. Therefore; NASD staff considered the depositS made to the Reserve
Bank Account as not bona fide. ' , , . .
011.1249067.1
'3142
: FOLEY
Jeffrey A. Ziesman
March 11, 2005
Page 4
c. Legent's Actions Following the Exam.
. As soon as NASD staff alerted Legent of its position with respect to the. five
deposits, Legent notified the appropriate regulators. (2120/04 letter from J. Sime,
Testimony Ex. 8.) In addition, changed its procedures to prevent any intra-day deficit
appearing on its books on the day of a deposit to the Reserve Bank account. Under these new
procedures, if a deposit to the Reserve Bank Account would result in an intra-day deficit balance
on Legent's books, Legentdraws upon its line of credit the business day before the deposit is to
be made. (6129/04 letter from J. Sime to J. Greening,Testimony Ex. 11.) Asaresult, the funds
necessary to make the deposit to the Reserve Bank. Account are in the Harris Bank operating
account the day before the deposit is to be made. For example, if Legent makes its net capital
computation on a Friday and that it needs to 'make a deposit of $10 million into its
Reserve Bank Account, Harris Bank advances any riecessary funds to Legent"s operating account
oli Monday, before m3.kes the required deposIt on Tuesday. . '
only'did Legent take iminediate action to ensure that there would be no future
4,eposits into the Reserve Bank Account resulting in the appearance of an intra-day on its
books, also took to the concerns expressed by NASD staff .regarding
. Legent's net capItal position. agreed to all of the voluntary restrictions set fo$, iIi the'
. NASD's letter of February 26,2004. (2126/04 from T .. Clough. to D.Wren and I. SiI:ne, .
Testimony Ex. 9; Testnnonyof J. Sime, at 90.)' These voluntary restrictions including increasing
its net capital, sending all net capital computation.s to NASD staff for review and compl.lting net
capital on an accelerated 'basis. (Id.) Legent agreed to yet another of volun1:?UY
set forth in the NASD's letter of March 30, 2004. (3/30/04 letter from J. Greeni,ng to D. Wrer,.
and j. Sime.) Legent operated under these restrictions, fully cooperating \vith the NASD, until
November 24, 2004. when the NASD provided,Legent with notice that the restrictions were ,no
. longer in effect.! (U/24/04Ietter from L. Henoch . , .
"
, ,
. D. . Given the Technical. Nature of the Alleged Violation, the Lack of Risk of
Reoccurrence and Factors, Disciplinary Action is Unwarranted.
Bringing a disciplinary action against Legent and/or its employees is unwarranted
and would serve no 'purpose. 1;be NASD has described the purpose of bringing disciplinary
actions as follows: . ,
Tpe ov,erall purpose ofNASD'sdisciplinaryprocess and NASD's
. responsibility in imposing sanctions are to remediate misconduct .
.' . .
1 Legentaiso dramatically scaled back the amount of business it was doing with its largest customer,
optionsXpress. Legent was concerned that, based on the growth rate of Legent would be
unable to support the business based 'upon its capital structure at the time. (Testimony of J. Sirile, at 75-77.)
Accordingly, out of an abundance. of caution, Legent made the extremely difficult decision to transition most of . the
option,sXpress business to another clearing firm. (ld.)
011.1249067.1
3143
: FOLEY
Jeffrey A. Ziesman
March 11,2005
PageS
by preventing the recurrence of misconduct, improving overall
standards in the industry, and protecting the investing public.
(Sanction Guidelines, at 4.) DiscIplinary action againstLegent will do nothing to advance this
overall purpose or any of the general principles described in NASD's sanctions guidelines ..
First, there is no risk of .reoccurrence. The alleged violation was the result of
Legent Clearing not being aware of the specifics of an SEC Staff Interpretation and, as soon as it
became aware of Interpretation and NASD's position with respect to the intra-day recording of
loans, Legent implemented new procedures such that any and all advances on the line of credit
are made the day befor.e a deposit is made to the Reserve Bank Account,
Second, to the extent there was a violation of Rule 15c3-3, the violation was
entirely unintentional and simply a result of Lege nt's failure to record intra-day.draws on its line
of credit with Harris Bank. As Mr. Sime testified, he was aware that a deposit to the Reserve
Bank Account would not be considered bona fide if it resulted in an over-draft position in the.
account from which the deposit was made. (Testimony of J. Sime, at 40-41.) Neither Legent nor
Harris Bank, however, considered the operating account to be overdrawn because Harris Bank
advanced funds as necessary to cover with4rawals. Indeed, the NASD exain staff (specifically,'
Michael Levickas) agreed that, -had Legent recorded the intra-day advances from the line of
. credit, Legenl"would have fully complied with Rule 15c3-3.
. . .
Third, not only did Legent believe that it was fully complying with Rule 15c3-3,
Legent made no attempt to conceal anything from the NASD. To the contrary, Legent fully
complied with the NASD exam staff. Indeed, in a letter dated Jt}.ly29, 2004, Lisa Henoch
expressly noted the "cooperation and courtesies" that Legent extended to the NASD staff during
the' exam. Legent's cooperation did not end with the exam. Legent agreed to a number of
. voluntary restrictions, including keeping the NASI) staff fully informed of all net capital
computations for a nine-month period. .
Finally, Legent did not benefit financially or in any way by the alleged violation.
Likewise, no investor and anyone else was harmed by Legent's actions. Indeed, there is no
evidence or. even a suggestion that Legent's faIlure to record intra-day advances on its books in
any way jeopardized or otherwise affected Legent's customers.2 .
All of these factors establish that disciplinary action is unwarranted against
Legent. . These same factors also dictate that no action be taken against any of Legent's
employees. Jeff Sime, Legent's Financial and Operations Principal, started his career in .
2 The Sanction Guidelines also indicate that the size of the transactions is a consideration. In this case, .
while the deposits to the Reserve Bank Account were large (ranging between $3.7 and $40.8 million), the size of the
deposits is irrelevant. As Mr. Sime pointed out in his testimony, if Legent made a $40 million deposit to its Reserve
Bank Account that crtCated a intra-day deficit position on Legent's books, the NASD considers the entire $40 million
deposit as not bona fide- even if the intraday deficit position was only $1.00; .
011.1249067.1
3144
:FOLEY
Jeffrey A. Ziesman
March 11, 2005
Page 6
accounting more than 20 years ago and has been iri the securities industry for the last twelve
years: Throughout his Mr. Siine has maintained a spotless' record. (CRD, Testimony Ex.
2.)
Mr. Sime takes his duties &-id obligations as F.inancial and Operations Principal
extremely seriously and understands the importance of Rule. 15c3-3 and the net capital
requirements. The alleged Rule 15c3-3 violation was not the result of poor supervision or
negligence (much less any intentional act) on the part of Mr. Sime. Rather, to the exteJJ.t Legent
may have violated Rule 15c3-3, it was becaus'e no one at Legent, including Mr. Sime, was aware
of the specific requirements of the Interpretation. As Mr. Sime testified, he was "very surprised"
by the specifics of the interpretation.
3
(Testimony of J. Sime, a(42.) Yet, instead of pointing .
fmgers or coming up with excuses, Mr .. Sime has candidly admitted that he was unaware of the
specifics of the Interpretation and has taken full responsibility for 'Legent's procedUres and
processes with regard to Rule 1593-3. (ld. at 4f, 72-73.) Under' the NASD's Sanction
Guidelin.es, Mr. Sime's 'acknowledging his mistake and accepting responsibility is another key
, factor in support of a not to initiate disciplinary action.
Moreover, as soon as Mr. Sime made aware of the Interpretation and the
position of NASD staff, Mr .. SiIne iinmeciiately implemented procedures to prevent'
Mr. Sime has .also fully cooperated NASD enforcement staffs. He .worked .
closely with NASD staff duriilg the Exam, following their instructions and even providing them'
. with copies 'for their review and input. ,Mr. SiIne. continued to work closely and fully .
cooperate withNA.SD staff during the pe.riod When was su1:>ject to voluntary restrictions.
Mr. Sime has continued to be cooperative and forthcoming with NASD staff during the c'ourse of
this investigation. .' . ' .
. Bringing a disciplinary. action against' an individuaI is not appropriate in
circumstances such as these, where the alleged violation was not the result of any intentional-act
but a nlistakeregarding the specific requirementS of a Staff Interpretation, where the alleged:
vio lation did not harm any investors and was immediately remedied and where the individual has
no disciplinary history and has fully cooperated with NASD staff.
ll. No Action is Warranted with R.espect to the Alleged, Violations of
NASD Rules 6130 and 6620:' .
In your letter of November 12, 2004, you state that NASDstaff has made a
preliminary determination to recommend that disciplinary action also be brought for trade
reporting violations with respect to certain transactions. Specifically, NASD,'staff alleges,
that Legent violated NASD Rules 6130 and 6620 because (1) Legent'lacked documentation of :
the execution time for 25 (2) 38 transactions were reported as principal transactions
3 Mr. Sime explained that he was surprised b>,the requirement that loans be recorded on -an intra-day basis
because intra-day recording is generally not req1Jired: (Testimony of J. Sime, at 42.)
011.1249067.1
314.5
: FOLEY
Jeffrey A. Ziesman
March 11, 2005
Page 7
when performed on an agency basis; (3) 4 transactions were reported 90 seconds after execution
and did not include the execution time; and (4) 3 transactions involving OTC securities were
improperly bunched. Legent does not dispute these allegations. As mentioned above, however,
not every' violation rises to' a level of warranting disciplinary action. In this case, the alleged
violations do not warrant initiating disciplinary action. .
Legent recognizes the importance of the trade reporting rules and regulations and
endeavors to fully comply with all requirements .. In fact, Legent has never before been
investigated for or accused of failing to comply with any trade, reporting requirements.
Moreover, the instances cited by NASD staff were not the result of intentional misconduct.
Rather, they were simply the result of human error. For example, the misreporting of agency
transactions as principal transactions was simply the result of a clerk's failure to change from the
default setting on the NASDAQ trade reporting window of "principal" to "agency."
Legent has done everything in its power to reduce the risk of recurrence. For
example, because all of Legent' s trades are done on an agency basis, Legent requested that the
NASDAQ change the default in its trade reponing window to "agency}' NASDAQ was unable
to make that change and, therefore, Legent has made sure that all releyant employees are aware
of the need toc;hange fro.m settmg of to "agency." Indeed, Legent has'
reeducated its staff on all the trade reporting reqliirements, indudirig reiterating to its staff the
importance of documenting the execution time and, in instances where' a transaction is reported'
beyond 90 seconds after execution, the need to input the execution time into the Beta system .
. Legent has also ensured that its' employees are fully cognizant of the rules regatding the
bunching of OTCsecurities. Legent regularly monitors and reviews its trade reporting to ensure
that instances of these typesdonot reoccur.
Given the nature of the alleged violations; the fact that they involved so few
transactions (with respect to two of the violations, NASD only found three and four affected
transactions), and Legent's efforts to prevent recurrence, disciplinary action is not warranted. To
the extent, however, NASD staff believes that disciplinary action is warranted, such action could.
more appropriately brought pursuant to the Minor Rule Violation Plan ("MRVP"). As you are
aware, violations ofNASD Rules 6130 and 6620 are eligible for MRVP treatment. Moreover,
the NASD guidelines for determining whether a violations should be addressed through the
MRVP all indicate the appropriateness of MR;VP treatment. These guidelines set forth the
. following factors for staff to consider in determining whether'to apply MRVP treatment or
pursue full disciplinary proceedings: .
a; [W]hether a violation is more than a "technical" violation;
b. whether a violations deliberate;
c.the complexity of the issues;
d. whether there is a history or pattern of repeat violations;
011.1249067.1
3146
)
",
= FOLEY,
jeffrey A. Ziesman
March 1 i, 2005
Page 8
e. whether -the violation has significant impact on .investors or
) , :impairs the"ability ofNASD to the market;
f. the number of violations; ,
g. the ,firm or associated person's prior Minor Rule Violations
and/or other disciplinary history; and " '
h.the seriousness of the violation(s).
, NASD Notice to Members NASD Releases Minor Rule Violation ,PIari (MRVP)
Guidelines.
Each one of these factors' points against pursuing full disciplinary treatment. The
alleged trade reporting violations were of a' technical nature, entirely unintentional and do not
implicate complex issues. In addition, the alleged violations had no impact on investors and did'
not significantly impair the ability of NASD, to the While Legent does not'
,dispute the of ' the trade reporting requirements, these alleged violations were not of
'such a serious nat\lI'e to:warra.nt"full disciplinary, action. Finally, Legent"has a clean disciplinary: '
. lIistoty,with no history or patteni'of trade repOrting violationS and no pti9t' ' "
Mlli.orRule ,., "
ill. No Action is With the, Vioiations of
MSRB Rule G-14 and NASD Ruies 6230 and 2110. ' ,
YoUr letter of November 12, 2004 iridicates that NASD staff has made 'a
preliminary determination to'recommend that also be brought for certam trade
reporting violations with x:espect to certain, fixed income transactions. These' alleged violations'
'were entirely a.ndthere is no risk whatsoever reoccurrence. . '.
Kirkpatrick Pettis sold Legent Clearing (then known as KP Clearing) to tegent.
Holding Corp. in 2002. The process of separating Legent Clearing from Kirkpatrick Pettis was
not without glitches and, for oftime, certain transactions entered by Kirkpatrick Pettis
were appearing under l\1PID. It, was transactions that NASD's exam staff
identified as problematic during its 'exam in February 2004., In other words, while Legent takes
responsibility 'for the fact that these'trades were wrongl), reported on'its system as Legent trades,
it is important to note that Legent did not actually enter the trades and was not responsible for
how these trades were reported. Legfmt has established new procedures to prevent my non-
Legent personnel from entering trades 4t Legent's system. .
" "
Given Legent's lack of disciplinary history and the fatt that the alleged violations
were wholly Legent immediately took action to remedy the problem and there is
no risk of recurrence, disciplinary action is not warranted. ' '
011'.1249067,1"
3147
..
I FOLEY
. Jeffrey A. Ziesman
March 11, 20.0.5 .
Page.9
, .
Please ,do not hesitate to contact me if you wish to discuss th.1s-matter further.
Sincerely"
Ellen M. Wheeler,
cc: Jeffrey N. Sime
011.1249067.1
3148
: FOLEY
. Jeffrey A. Ziesman
March II, 2005
Page 10
bee: Phillip M. Goldberg
011.1249067.1
3149
TabC
Exhibit 94 Q (6)(vi)
3150
FINANCIAL INDUSTRY REqULATORY AUTHORITY
LETTER OF ACCEPTANCE, WAIVER AND CONSENT
.. NO. ,tloO'jOI6S?/"?
TO: . Department of Market Regulation
Financial IndUstry Regulatory Authority eFINRA i') ..
RE: Legent Respondent
Broker-pealer
CRD No. 117176
Pursuant to FINRA Rule .9216 of FINRA' s Code of Procedure, Legent Clearing (the "finn") .
submits this Letter of Acceptance, Waiver and .Consentf'AWC") forthe PmPoseofproposing a
settlement of the alleged rule violations described below. This A we is submitted on the
condition that, if accepted; FINRA wili not bring any future actions against the fum alleging
violations based on the same factual fmdings'described herein. .
] .
. ACCEPTANCE AND CONSENT
A. The hereby accepts and cOnSents, without admitting or- denying the findings, and
solely lor the purposes oltbis'proceeding and any other proceeding brought by or on
. behalf of FINRA. or to which FIN'RA is a party, prior to a hearing and without an .
of any issue oflaw or f{lct, to the entry of the following findings by FINRA:
BACKGROUND
The firm has been a member ofFINRA since June 4, 2002, and its registration remainS iIi
effect; The firm baS no relevant disciplinary history, . . .
. SUMMARY
The staff of the of Market the f1Il11's
SEC Rule 606 for the review period)anuary 1.2003 tbroughSeptember 30, 2007 ..
,. . . . . .
FACTS AND VIOLATIVE CONDuct
For the first of 2003 through the third Calendar quarter 2007, thefirrn
made publicly available a report on its rolrtirig of orderS in covered
securities during these quarters. This report included incorrect information because it
.. contained orders where the firm did not engage.in the routing The
: 2009()165713 (R.JB)
.3151
condtici described in this paragraph distinct violations of SEC
Rule 606 9fRegulation NMS ..
:S. The fum. also consents to the imposition of the sanctions:
A censure and fine of $20,000.
The finn agrees to pay the rilOnetafy sanction(s) upon that this AWe has been .
accepted .and that such payment(s) are due and payable. It has submitted an Ejection of .
Payment fonn showing the method by which it proposes to pay the fine imposed. .
. .
The finn specifically and voluntarily V\raivesany right loclaim that it is unable to pay,
now or at any time hereafter,.tbe monetarysancHon(s) imposed in this matter.
. .
The imposed herein shallbe effective a date set by FlNRA .
II.
WAIVER OF PROCEDURAL RIGHTS
The firm specifically and voluntarily waives the following rights under FINRAlsCodeof ..
Procedure: .
A.To have aCoinplafut sPecifyiIig the against the finn;
B. . To be notified of the Complaint anq have the opportuniiy to answertbe allegations in
e.
D ..
V't-'riting; .
. .
To defend against the aliegations in a disciplinary hearing before a hearing panel, to have
a record- of the hearing made and to have a written decision issued; and
To appeal any such p.ecisiori to the National Adjudicatory Council (''NAC'') and then to
the U:.S. Securities' and Exchange COInmission a:;Id a U.S. Court of Appeals.. .
.. -.Further, the finn specifically and voluntarily waives any right to claim bias or prejudgment of.the
. GeneTaI Counsel, the NAC, or any member of the NAC, in cqnnection with s.uch person's or
. body's pax:ticipation in discussions regarding the terms and conditions o.ftbis AWC,or other ..
consideration of.this A we, including acceptance or rejeCtiOIi of tlJis A WC. . .
The and volUntarily waives any right to claim that a person violated the
ex parte prohibitions ofFINRA Rule 9143 or the. separaiion of functions prohibitions ofFINRA
Rule 9144, in connection \VittI such person's or 1?ody's.participation in discussions regarding the
terms and conditions of this A or other cOnSideI'B:tion of this AWe, including its acceptance
. . . .
2
3152
. .... . . .' .
- . -
The undersigned, 'on behalfof the Firm. certifies that a person duly a'l,lthorizedto act on itS
has read and understands all of the provisions of this AWe and has been given a full opportunity
to ask questions about it; that ithas agreed to the AWe's provisions voluntarily; and that no
offer, threat, inducement, or promise of any kind, other than the tenns set forth herein and the
prospect of avoiding the issuance of a Complaint, has been made to induce the finn to submit it.
Date
Reviewed by:
Attorney Name
Counsel for Respondent
Accepted by FINRA:
. Date-'
Respondent
Legen! _ .
By:
. Name;' c,eA-Jtfi A$L/If.J:!..
Title: uP. /cea
4.
3153
. I
Signed on behalf of the
Director of ODA, by au,thority
Thomas R. Gira
Executive Vice. President
Department of Market Regulation -
or ..
m.
OTHER MATTEltS
The firm' understands that:
.' .
A. Submission of this AWC is voluntary and will npt resolvethlS matterunIess an!i'until it .,
has been: reviewed accepted by the NAC, a Review Su,bcommittee of the NAC. or the
. Office 9f Disciplinary A.:ffi1.irs pursuant to FINRA Rule 9216;
B. If this A WC is not acCepted, its submission wiil not be used as evidence to of
the allegations against the finn; and .
c. '. If accepted:
1.:
2.
...
.J.
4 ..
this A WC will become part 'of the firm's pernlaneIit disciplinary record and may.
. be. considered in any future brought by FINRA or any.other regUlator
against the firm;
this Awe will be made available throughFINRA's public disclosure program in .
response to public inquiries about the finn's disciplinary record; .
'FINRAmaymake a public announcement concerrung this 8greement and the
subject matter ili:ereoi"in accordance with FINRA Rule 8313; and .
The finn may not take any action or make or'permit to be. made any public
statement, in regulatory filings ()r otherwise. 4enying,. directly or
any fmding in A we or create the impression .that the A WC is
v.ithoUt factual. basis. The fnm may any position in any proceeding
brought by or on behalf ofFlNRA, or to which FINRA is a partY,that is
inconsistent with any part of this AWC. Nothing provision affects the
fu;m;s rightto take legal or factl,lalpQsitions jn litigation' or othedegal .
proceedings in which FJNR.A. is not a party.
The firm may attach a Corrective' Action Statement to this is.. we that is a statemetrt of
. demonstrable corrective Steps taken to' prevent future misconduct.. The fum understands
that it may not deny the charges or m<ike .any statement that is inconsistent with the A WC
in this' Statement. This Statement does not conStitute factual oi legal findings by
nor does it reflect the viewS' of or its staff. .
3
3154.
ELECTION OF PAYMENT FORM
The firni intends pay :the fine in the attached Letter of Acceptance, Waiver
and by the follo\ving method .one):
. .
D.ate
. ).(. A fum check orbaDk check for the full amount;
o Wire transfer;
o Credit card authorization for the full
1
or .
. 0 The installment payment plan.( orily if approved. by FINRA staff and the Office of
.. Disciplinary Affafrs).2 .' . .
ltespectfully submitted, .
Resporident
Legent Clearing

&tIt1G,
Title: . 'XCU!J.'!CCo

1 Only Mastercard. Visa and American are accepted for payment by credlt card .. If this option is ch9sen,
the appropriate forms wilI be to you, with an. invoice, by FINRA's FinanQe Department. Do not include YO\1r
credit card number'()O this form. . . .
. 2 The installment 'payment plan is only available for fines or more, Certain interest payments; m'inimum
. initiaiand monthly payments, and other.requirements apply_ You milst discuss these terms with FINRA staff prior
to requesting this method' of payment; .
20090165713(RJB) .
3155
~ . T a b C
)
Exhibit 94 Q (6)(vii)
3156 .
;r-/
i
08/22/2009 15:35 FAX 8164214519 FINRA

FI!13nciallndustl)' Authority
TO Joseph D. Edmondson, Esq.
COMPANY
Foley & Lardner LLP
FAX
(202) 672-5399
Tf,:L
DATE
September 22, 2009
NUMBER OF PAGES INl;lUDINO COVER 21
Re: FINRA Matter No. 2007007133001
Legent Clearing LLC .
Investor protection. Market integrity.
3157

FACSIMILE
I'Ii:OM Jeffrey A. Ziesman, Esq.
(B16) 421-4519
(Bi6) 802-4712
This faJ( strictly r;;onfidentlal and is intended
soll!ly for the person or organization towhom it Is addressed.
120 West 12th Street
Suite BOO
Kansas City, MO
6410S-l.941
t Slfj 421 5700
f 816421 5029
www.finra.org
08122/2008 15:36 FAX 8164214519
FIHRP..
Flnr1r
Financial Industry Regulatory Authority
September 22, 2009
Facsimile: (202) 672-5399
Email:iedmondson@f()rey.com .
and First Class Mail
Joseph D. Edmondson Jr'j Esq.
Foley & Larw1er LLP .
3000 K Street. N.W.
Suite 600
DC 20007
002/021
R!;!": Notice of Acceptance of A we No. 20070071330 .
Legent Clearing LLC .
Dear Mr. Edmondson:
Attached please find a. of Acceptance, Waiver imd Consent for Legent Clearing LLC.
dated September 21. 2009. This attachmcnl supersedes the previous AWCs dated December
31, 2008 and January 12. 2009, and modifies the A WC. .
TJ'te modifications specifically involve the references to B.M.I. on pages 5 and 6. We also
added footnote 1 on page I .. the heading which references that this is an Amended and
Reissued and we page numbers on the bottom of the pages (because the
numbers were on the top and bottom of the pages). .
Enclosure
I!'IVestor protectIon. Ma rket intesrity.
Kansas City District Office t 816421 5700
120 Wesl12th Shed. suite sao r 8164215029
315.8
K,msasCity. MO www.finfu.orz
&1Jl05 .
"
09/22/2009,15:3S,FAX B1S4214519' fINRA IgJ 003/021,
RECEIVED
FmANClALINDUS'l'RYREGULATOav AUTHORITY "AUG,S1
LETTER OF ACCEPTANCJ!:, WAIVER AND CONSENT ' ,:' ,
, ' " NO. 1007007133001 , ,,' , FINRA District 4
(AMENDED and REISSUED)
To: ' ,Department orEnforcoment ..
FJnancial'lndustry Regulatory Authority (FINRA) "
Re! Legcnt Clet!ring LLC
Me-.nber FIrm
CRDNo.,117176
PUT$'l.l8I11 Lo NASO of FINRA's Code ofProc:cdure, Legen! Clearing LLC(Legent) sUbmits
this I..etteT of AccCpLancc. Waiver and (AWC) for the puQ)05e 'of proposing a settlement of the
alleged rule :Violations described below. This A WC submitted on the condition that, if accepted,
, ' FINRA wi11 not bring anr ,wl:\lrC actions, against Legent alleging violation$ based on the factual ,
, findings desCribed here:UL. ' ' , " ' ",' " ,
1. ACcEPTANCE AND CONSENT
, '
A. Legent hereby and consents, without denying, the findings, and'
solely for the putpOses of this proceeding and any 9tber proceeding hrollgbt by or on '
behalf of FlNRJ\., or to which FINRA is a Par:tr, prior to a hearing IlDd Without an ' '
adjudication of any issue of law or fact, to the entry of the findings by' FINRA:
Background'
Legent has been' a member ofFINRA or its predecessor, NASD, fiiincc June 4; 2002. Legent acts '
.8$ a broker offering its serVices to introducing broker/dealers on ,I fully disclosed 'basis
, from its maio office located in Omaha. Nebraska. As a clearing firm, Legent perfonns order ,
settlement and record-keepingfurjcLions 'for 'introducing broker/dealers'. These
broker/dea.leIS do not maintain back-oftice to perform Lhesefunctions.
, Relevant Prior History,
l..egimt has been the subject of one fOIDlal disciplinary action br'FINRA relevant'to this matter.
, See AWC No. E042004Q084 (fining Legent$40,OOO for, among other, thingS" SEC R\lle lSc3i
violations). ' ' ,
. ITbig AWC,was previoustyusued on January 1,2,2009. It is being reissued in order to amend certain
information iii the facttIal discussion. LegOl1t has' a.lready complied witll all of the $8nctions descnoed,in
this reis$Ued AWe. "
'3159
08/22/2009 FAX i16421451S FINRA
I4J 004/021'
Letter oCAcceptl'lttce, Wavier aud Consent
Legent Clearing LLC
Pagel
Overview
Legent failed to develop and implement a written artti-money laundering (AML) progra.m
reasonably designed to achievc ,a:tI.d monitor its compliance with the requirements of the Bank
Secrecy Act, during the period of February 1, 2004 through November 30, 2006 (the relevant'
, AML period). Legent's AML program was not tailored to the Finn's business and did not
adequately Provide documentation of the Firm's AML activities. Among other things, Legent's
written program did n,ot adequa.tely consider the money laundering risks posed by its
introducing finns, some of which were conducting high risk AMLacti'Vities, such as penny-stock
liquidations. Further, while Legent experienced rapid gruwth during the rclcvant AML period. it
did not provide adequate resources to its' AML program to account for this growth. 'As a
consequence, Legent failed to file a Suspicious Ativity Report (SAR) in a-number of instances in
which there did not appear to be any legitimate purpose for the transaction. Moreover, while in
soine instances Legent rnayhave discussed some' of these transactions'internally, it did not
conduct all adequate investigation to determine that the transactions were not in fact suspicious.
In addition, LegeXlt failed to document any discussions it might have had or the reason fCJT any'
decision that it might have made not to file a SAR. '
l,c:gcntalso failed to provide an adequalc AML training program for new a.nd existing employees.
For new employees, Legent's training program was limited to ad h()c instruction from
departmental supervisors and a two-page document explaining money laundering. For existing,
employees. Legenl's r:nililing program was limited to a shorr PowerPoint presentation at the
annual compliatlcemeeting., ' ,
Through these deficiencies, Legcnt failed to develop and implement a.nadequate written AML
program, in violation of t'iASp Conduct Rules 301l(a), 301 1 (b), 301 1 (e) and 21 to, and MSRB
R:LlIe 0-41.
fu addition, from at least June 2004 through October Z006 (the relevant Reg. T period), Legent
irnproperlyextended credit by pennitting cash account customers to'use the procceds of unsettled
sale transactions to fund subsequent purchase and sale transactions. Legent also improperly
extended credit by perm.ittingcustorners to use the proceeds of unsettled .sale transactions to meet
the requirement tharall securities purchitsed in cash accounts be paid for within five days of
purchase date, regardless of whether and when the securities were subsequently sold. Legentalso
failed to have adequate supei:visory systems and procedures to ensUre compliance with
Regulation T. .AS a resull, Legenl violated Rcgnlation T, Parts 220.8(a) and (b), promulgated
pursuant to ,Section 7 of the Securities Exchange Act of 1934 (the Exchange Act), and NASD,
Conduct Rules 2110 and 3010. .' ',,'
Finally. Legcnt failed to prepare an accurate reservecotl'l.putation ca.lculation iIi February 2007 '
and April 2006. This violated SEC Rule 15c3-3 and NASD Conduct RulcZl10.
3160
09/22/2008 15:37 FAX 8164214519 FINRA
Letter or A.cceptance, Wavier 8J1d Consent
Legent ClearingLLC
Page 3 .
Facts and Violative Conduct
Legent's AML Violations
Background
Im 005/021
Legent became a member of FINRA in 2002. At the beginning of the relevant AML period,
Legentptovided clearingservic:cS to nine introducing finns. By the end of the relevant AML
period, a little more than two and a half YCSl:'Slater, that had grown to 50, in locati.ons
across the United States, including New York City. Chicago and LQs Angeles,
Some of these inlrOducing firms engaged in activities that WI,lre high risk for AML purposes, such
as penny-stock transactions, liqui.dations of proceeds, and frequent joumaling activity among,
various accounts which apparently were unrelated. provided clearing services to some
finns that. in addition to engaging in these high-risk activities, also had significant disciplinary
backgrOunds.
FOt example, LegenL cleared for Franklin Flo$s, Inc. (Franklin Floss). Franklin Ross was the
of two enforcement proceedings brought by FINRA during 200 I including one that
charged Section 5 of the 1933 SecuritiC$ Act and supervisory violations. Also during: the relcvant
AML period, FINRA brought an action against Franklin Ross in Match 2006, alleging certain
omissions by the finn in a private offering. PurSuant to proceeding,FmnklinRoss was
suspended from participating in any securities offerings for onC year and fined $2.0,000, and the
finn's president suspended for 10 days from acting i.n any supervisory capacity. FINRA
expelled Franklin Ross in 2007 for-seriousAML violations. Set!. FINRA Press Release,
NovemberS, 2007,
Legent also cleared for Salomon Grey Financial Corp. (Salomon Grey'). The SEC charged
Salomon Grey. and its President, Kyle R.owe, with fraud in connection with a market.
manipulation scheme, and sought a pennanent injunction in a September 27, 2002 Complaint
filed in the United States District Court for the District of Utah. In August 2004, FINRA found in
a formal disciplinary proceeding that Salomon Grey and Rowe vjolated SEC RegUlation M, along
with NASD Conduct Rules l110 and 2110. Salomon Grey and Rowe were fined .$100,000, and
Rowe was suspended in all capacities for two weeks. Ultimately, PINRA expelled Salomon Grey
and biuTcd Rowe in April 2006 for AML and oLht:r $crious superv:isory violations .. See FINRA
Press Release, April 27. 2006.
Still another introducing firm thatha:d a disciplinary history, and for which Legent provided
clearingseMces, was Blackwell Donaldson & Compliny(Blackwell Donaldson). From 1999 to
2002, prior to the relevantAML Blackwell Donaldson was the subject of at least three
separate regulatory enforcement actions, including onc iri which the finn was fined $$0,000 by
the State of Oregon Jor, among other things, serious :supcmsory deficiencies relating to micro-
cap stock transaclions. In June 2006, FINRAbroughtan aclion against BlackwcU Donaldson's
Chief Executive Officcr and Anti:-Money Laundering Compliance Officer for his role inrhe
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fumts serious AML viotatiOll$ thatOCCUJ;Ted from March 2004 to August 20M, and suspended
him for one year from a:cting in any SUpervisory capaciLy.l
NASD Conduct Ryle 3011 mid MSRB Rule .
. . .
.. .
. NASD Conduct Rule 3011, which became effective on Apri.124. 2002, requires members
to develop and implement a written AMI.. prOgram designed to achieve monitor
compliance with .the requjremenblof the Bank Secrecy Act, 31 S311t et seq . and the
regulations promulpted thereunder .. Section (a) of this Rule din::cta member firms to establish
. IlJ'ld implem.ent procedures reasonably designed. to dclcct and cay,se reporting of C?Crtain
suspiciollSLr'anSactions. Section (b) requires to establish and implement proccdure.s
reasonably designed [oachievecompliaocc with the Bank Secrecy Act. Section (e) requires firms
to provide relevant oR-going training to appropriate personnel. FlNRA has . issued tlumerous
communications to its members regarding the requirements of Rule 3011. See Notice to Members
(NTM) 02-21 (Apli12002), Q2-47 (Augtist2002), 02-50 (August 2(02). 02-78 (November 2002),
(December 2002), (l1.1IJci Z003) and 06-07 (February 2006). . ..
MSRB Rule 0-41 for those broker/dealers engaged in municipal
sec:urities transactions. ..
NASD COnduct RIlle 3.01 1 (a) requ,ircs FlNRA members to implemenfpolicies and
proced1.Jres "that can be expected to detect and cause the reporting of" suspicious
trarulacti9na. 011 July 2, 2002, the Department" of Tteasury issued the regulation requiriIig
suspicious transaction reporting for \)raker/dealers, 31 CFR 103.19(a)(1). It required all .
broker/dealers to file withTreasury's PmancialCrimes Enforcement Network (PinCEN) "a report
of any $U$picio.u r.ransaction relevant to a possible violation of law Or regulation." Trca.."iury's
release stated that broker/dealers should detennine whether activities andttansactions raise
.suSpicions by looking for "red flags." NTM 02-47 diScussed treasury's release, set forth the ..
provisions fmal AMLrute, and provided various examples of l'recl flags."-. 'Ibis NTM .
. further advised broker/dealers of their duty to file a SAR to report certainsuspiciollS
iX'an$aetions.! Further . NTM 0221 empbash:ed each .finn's duty to detoct "redtlags" and, if it
detected any. ''perfOIJll additional due Qiligence pt"occediilg withthcl NTM
p. 10. . . . ..
iBlackwell Donaldson filed a Form BDW in M8rch 2005.
3"Pln'suan( to the final rule, a broket!.dealer must report att8.ns8.ction on Form SAR-SF if 'the tra.I'l:Saction
involvesSS,OoO or more, is. conducted or to be conducted through the broker/dealer and
appears to serve. no business ot appatenflawful purpose .... '" NTM 0247, p. 2. The obligation to file a
. 8AR may arise from a single transaction or fro1n.a series.oftransactions that fonn a suspicious pattern of
activity. ld. NTM 02-47 quoted FlnCEN's the final.rule relating to 8ARs, statin;. "In its
release adoptintt the final rule. PinCEN eXplicitly clarifies that 'if a broker/dealer determines that a series
of transactions that would not independently trigger the suspicion of the broker/dealer, but that tllken. .
. together, fonn. a 5uspici
ou
spattcin of activityt the broker/dealer m.ust file a suspicious tranSactiOn
7
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Legent's Failure to File SARs
Or Investigate Suspicious Activities
During the relevant AML period. Legcnt failed to fitc SARs in numerous instances as dcscnoed
below. Legent cleared certain penny-stock transactions that presented patterns that necessitated,
at a minimum, furthednve$tigation by Legent. More importantly. in many instances these
patterns should have led to a sAN. filing. In these instances Legent did not undertake adequate
further did not consider filing a SAR. and did not file a SAR. See NTM 02-47, pp.
2-3 (outlining circumstances pursuant to which broker/dealer must file a SAR.); see also In the
Matter of Parle Financial Gro'IJ.p, Inc. and Gordon C Cantley, SEC ReI. No. 56902, Admin. Proc.
File No. 312614, p.4 (Sl!C Dec. 5, 2007) ("'The failure to file a SAR as required by 31 C,F.R.
103.19 is aviolation of Section of the Exchange Ac:t.and Rule 17ag thereunder."). Also
significant, to the extent Legent undertook any investigation, or considered filing a SAR but
ultimately decided not to do Legenr failed to document such investigation or decision.
Examples of these failures by Legent are described below.

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Legent's Failure To Timely File SARs
While Legent filed some SARs during the relevant AML in several. instances it did so
many months after the inception of suspicious conduct. For instance, in one SAR,filingLegent'
identified that the suspicious actiVity had commenced nearly 16 months before the SAR was
, ,
Such delay in. filing SARs is Inconsistent with guidance provided by FinCEN and FINRA. As
discussed in NTM 02-47. p. 4, "Broker/dealers must file FOnn SAR-SF wjmin 30 days of'
becoming aware' of the sllspicious transaction. If the broker/dealer is unable to identify a suspect,
the rule PfQvides an extra 30 days for filing the Fonn 8AR-SF." See also The SAR Activity
. ReView, Trends. Tips & issues. Issue 10. p. 45 (May 20(6) ("TIle time periocho tile a SAR starts
when the institUtion; in the course of its review' or as a remit of other factors, reaches the
conclusion in which it knows, or has reason to suspect, that the activity or transactions under
review meets one or more of the definitionl! of suspicious activity. The 30-day ... period does
not begin until an appropriate review is conducted and a detennination'is made that the
transaction under review is 'suspiciou$' within the meaning; of the SAR regulations.'').
Legent's foregoing conduct violated NASD Conduct Rules 3011(a) and 21) 0 and MSRH Rule G- .
41.
Lcgent's AML P.rogram and Written Procedures Were lnadcquate'
Legent's AML writtenproceduteSwere inadequate fot a number of reasons. For
instance, the prOcedures were not specifically tru10red to I..egent's particular business model.
FlNRA NTM 02-21 emphasized that firms shooldnor use a "one-sb;e-fit.s-aU" approach in
crafting an AML program and procedures .. Moreover, the resources that Legent committed to its
AML program did not keep pace with the firm's rapid gfowth dllring the relevant AML period.
. .. .
Some of the introducing firms for which Legent provided clearing scrvicea engaged in a
significant number of transactions that were high risk for AML purposes, su.ch as penny-stock
transactions, liqu.idation of proceeds, IlPd frequent joumalirtg activity among various accounts
which were apparently unrelated. Some of these same firms had securities industry disciplinary
histories. '
As a clearing finn, Legent was obligated to consider the money laundering risks posed by the
introdllcing inns with which Legent did business, including information Legent obta.ined in the
course of its relationship with the introducing finn. See FinCEN Guidance, FIN-20()6-G009, p.2
(May ]0, 2006) ("In a relationship with an introducing finn, a clearing firm must consider the
money laundering risks posed by the iritroducing finn, including any information the clearing'
finn acquires about the account base of the introducing finn in the ordinary course of irs business
and through the a.pplication of its anti-money laundering policies. procedures, and controls.''):
Legeilt did not adequately consider these risks in its AML program, or in actual practice.
F1NRAhas provided examples of "red flags" for money laundering inc}llding, but not limi ted to,
tbefollowing: '
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The customer engages in excessive journal entries between related
accounts without any apparent business purpose, or,
The customer, for no apparent reason or in conjuIiction with other 'red
fliigS,' engages in transactions involving certain types of securities, such
as penny stocks ....
NTM 02-2 1, pp. 10-11.

Legent's AML program and written procedUrcs did not adequately identify these "red lags" and
risks. Instead, for much of the relevant AML period, simply imported text from FINRA's
AML program Small FUm Template and did not tailor the Template to its business. By doing so,
Legent did not account for the Wlique risks it faced. . .
Legent updated its AML written procedures near the end of the relevant AML period, in August
2006, and for the firs t time expressly recognized in them one of the maj or AML risks it faced ilS a
clearing finn- the joumaling and transferring of assets by it:! introducing finns' customers.
While the August 2006 procedures acknowledged thi.!l risk, they did not adequately address the
surveillance of introducing firms' euslomer accounts for :mspicious journaling activity.
Further, I,cgent's AML program and written procedures were inadequate because they lacked
. many necessary details. PINRA has provided guidance to the industry, directing that AML
written procedures "must establish and implement controls a.nd wrinen pr9cedures that explain
the procedures that must be followed, the person responsible for carrying out such procedures,
. how frequently such procedures must be perfonned, and how compliance with the procedures
should be documented and tested." FINRA NTM 02.21, p.5 ..
For instance, each of the firm's written procedures in effecl during the relevant AML period
generally required the use and review of exception reports to monitor account activity. However,
until August 200<,. nOlle of the written procedures actually identified or described any of the
exception reports to be. reviewed, nor did. they describe the proceSs to be used in reviewing these
reports; Several versions requi.red documentation of the review without desc1'1bing how Or where
the rev:icw was to be documented, while other versions did not require documentation at all. The
procedures didnot assign responsibility to specific people, but instead required the review to be
done by unspecified "Operations personal [sic], Tradcr$, and the Anti Money Laundering
Compliance Officer." December 2005 independent audit discovered this deficiency and
recommended. adding specific details and descriptions, but Legent did not follow the
:recommendation until near the end of the AML period.
Legent's AML procedures also did riot specify how Legent's department heads were to use "desk
procedures" crea.ted by the departments. The "desk procedures" were essentially step-by-step
guidelines on how the departments were to conduct their functions to comply with broker/dealer
regulatory requirements. However, the "desk prOCedures" were not tailored 10 address. AMI.-
issues, and. were not revicwed or drafted by Legent's Anti-Monc:yLaundering Compliance
Officer (AMLCO). .
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, Legent's foregoing conduct \'iolated NASD Conduct RuleS 301l(a)-(b)and2J 1,0 and'MSRB
'RuleG-4i. . ' ". '
The firm's AML Training Program was Deficient
Legent's AML training program during the AMi. periQd was deficient. At .the beginning
of the relevant AML period, Legent did not provide any uniform AML training for ibl new
employees. Instead, Lcgent reIieq on its supervisors to give new employees
whatever AML training a particular SI.1pervisor deemed necessary. There were' no controlS oT
prQceciures in place to ensure that AML training was Lcgcnt's AMLCO did not take
partin thcttaining that the departmental supervisors were ptovidingto their new employees.
In approximately December200S. Legeritbegan giving new employees a twq-page
provided a brief explanation ofthe Patriot Act. money laundering. and AML. NeW employees
would receive this two-pagedocmnent, along with other new employee forms and dOcuments, on
their first'day of work at Legent. Then! stillwas no traiIiing provided by or supervised by the,
AMLCO or cOmpliance department, Of a. senior officer of Legent; ;FINRA has advi5ed. member
finns that AML employee training should be develuped under the: leadership of the AML
'Compliance Officer or senior tnanagemCnt." NTM 14. The foregoing prQccss for
, training new employees existed through the end of the relevant AML and into January
2007. ' '
1\9. fOf. e,,;:i$ting ,employees. Legent's training oCcurred at its 'annual compliance meetin&. and
consisted of a short PowerPaint presentation made by the. AMLCO. Legent provided no
additional, focused, AML training to who had specific 'AML responsibilities. This
level of training was J10t sufficienl. giventbe types of business for which Legent was providing
clearing services. '
Legent's foregoing conduct violated NASD Conduct Rilles 3011(e) Z!lld 2110 andMSRB Rule G-
, 41. ' ... '. "
. Lelent's Regulation T Violations
The APolication of R.egrilatio.n T to Cash Accounts
Legent violated Regulation T by failing to ensure. (i) ,that securities were fully paid for priofto
sale and (ii) that securities were fully paid for within two da)'s of settlement.
In Cash ACcounts. Payment for Securities is Rea\1ired Prior to Sa!e
of the Exchange Act provides that:
It shall be unlawful for any of a securities excfumge or finy
broker or dealer, directly or indirectly, to. extend or maintain credit or arrange for
the extension Or maintenance of credit to or for any customer - on any sccurity
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(other than an exempted security) ... in contravention of the rules and regulations
which the Board of Governors of the Federal Reserve System ... shall prescribe.
Part 220.8(a) ofRcgulationT provides in relevant part:
(a) Permissible Transaction-f. In a cash account, a creditor) may: .
(1) Buy for or sell to any customer any security or other asset if:
(i) There are sufficient funds in the account; or
(ii) The creditor accepts in good faith !he customer's
agreement. thal the customer will promptly make full
.cashpayxnent for the security or asset before selling it
and does not contemplate selling it prior to making such
.
. (2) Buy from or sell for any customer any security or olherasset if:
(i) The security is held in the account; or
(ii) ..The creditor accepts in good faith the customer's
statement that the $ccurity is owned by the customer or
the customer'S principal, and that it will be promptly
deposite:d in the account __ ..
015/021
In bclwecn a principaldi$dosed Clearing finn lind an introducing broker, the clearing
finn isresponllible for Regulation T compliance, because it is considered the creditor thai extends.
the credit. See Fed. Res. Staff Op., 2 Reserve R.egulatory Services, Parr 5-615,971 (Apr ..
19, 1991). UodctRegulation T, securities may be purchased ina cash only if the.
customer has sufficient funds in the account to pay for the purchase, independent of the proceeds
to be received from the sale of those securities. See, . e.g . Fed. Res. Staff Cp., 2
Federal Reserve Regulatory Semccs, Part 5-616.11 (May 27, 1994). Additionally, the sale of a
security to pay .for another security purchasd on the same date does not g;ive rise to sufficient
funds in the account by the applicable deadline. See. e.g . Fed. Res. StaffOp., Reserve
Regulatory Services, Part (Feb. 18, 1999).Sel':: also Fed. Res. Staff Cp., 2 Federal
Reserve Regulatory Services1 Part.5:-616.15 (Jan. 6,2000); Fed, Res. Staff Op . 2 Federal Reserve
Regulatory Services. Part 5-615.971)(Apr. 19, 1991).
A Federal Reserve Board staff opinion addressed a situation in which!). customer sells Stock Aon .
Day 1,buys Stock B ollDay 2, sells StockB on Day 3, and then buys and sells Stock C on cl.ay5.
Fed. Res. Staff Op;, 2 Federal Reserve Regulatory Serviccs,Part 5-616.18 (May 12, 2003). The
fact pattern . assumed tha.t all of the. individual pUTchB.$cS cost less than the "account balance" and
that Stock A had been paid for before it was .sold on Day 1. The Board staff stated that
Regulation Tallows two methods for paying for a securities P':1rchase in a cash account: (1) a
customer who has sufficient funds inthe account on trade date may purchase sccuriries and sell
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them at any time; and (2) a customer who does not ha'Vesufficient frnlds in the account.on trade
date may purchase securities with the undCT$t.anding that. such securities will not be sold until they
are paid in full. The opinion cmphasilZed that sale proceeds that had not yet been received do not
constitutc funds."
Underthe facts presented in the foregoing example, the staff opinion stated that the sale of StOck
B on Day 3 was inconsistent with the agreement that the customer will promptly make full caSh
payment for the security or asset before selljilg it and not contemplate selling it prior to
making such payment. The opinion alr;ro concluded that the sale of Stock B on Day 3, before the
cash to pay for it was received, shouldpul the broker/dealer on notice tbt the customer has
engagcd .in a transaction that is not permissible in the cash accounL The opinion fUrther stated
that the purchase of Stock C on Day 5 would therefore also have to be made pursuant to section
'220.8(a)(l)(ii), with the result that the sale of Stock C on Day 5 was also a transaction that is nol
pennissible in the cash account. The opinion noted that this 'interpretation did not set forth a new
legal proposition, explaillingthat for over SO years, Regulation T has required customers to pay
for seCurities purchased in a cMh account before sel1ing them.
NASD issued Notice to Members 04-38, Credit E;ctenslonIDay Trading Requirements (May
2004) stating as follows: .
[Federal Reserve Board] interpretations make clear that a customer who sells a
security on trade date to,'pay for another sec,urity purchased on that day does not
have "sufficient funds in the account" on trade date for purposes of Reg T
Section 220.8(a)(1)(i). Rather a ,customer must make full payment for each
separate purchase transaction in a cash account without regard tothC unsettled
proceeds of securities sold. Jf a member finn plans [0 accept the unse1l1cd
proceeds of a securities sale as paymentfOT sccurities purchased, the transaction
, must be conducted in a margm account. subject to the rcglilationsaffording
protection to customers who trade in margin accounts. [Citations omitted]
In Cash Accounts, Payment fOT Securities is within Two Days of Settlement
Part 220.8(b) of ttegulation T provides the time perioda when payment for securities purchase
must be made and states in relevant part: .
(b) Time per1.ocbfor payment: ccmcellation Or liquidation
. (1)
Full cash payment. A creditor shall obtain full cash payment for
customer purchases: .
(i) Within one payment period of the date:
(A) Any noncxcmpted security ...vIlS purchased.
In tum, Part 220.2 defines "payment period" to mean "the nllmber of business days in the
standard securities settlement cycle in the United States .:. plus two bUsiness days."
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In a Federal Reserve Board Staff Opinion dated September 30, 198<>. the staff addressed the
question of whether a customer can "use sale proceeds of one security to pay for the purchase of Ii
, different security, so long as the trade date, of the sale is on or beforethc; settlement date of the
purchalic transaction." Fed. RC$. Staff Op., Part 5-615.94 (Sept. 30, 1986). The starr answered
the question by writing. "No, since the sale transaction will settle until after settlement of the
purchase transaction, there are insufficient funds in the account on settlement date. In addition,
, an extension of time could notbe granted by a sclf regularory organization in this case because
there is no acceptable reason for an extension under SectioIi 220.8(d)." Id.
,The Violations
During the relevant Reg. T period, Lcgenteffected improper trades by permitting customers to
sell securiLies in cash accounts befo(e making full cash payment in violation of Regula.tion T on
numerous occasions. In one month alone, there werc 77 violations, and the practice continued for .
29 months. Additionally. Legent failed to properly restrict accounlsfrom trading subsequenr [0
this activity.
Duriilg the Reg. T Legent also failed to ensure that, for each transaction in a' cash
account, fill! cash payrnentwas made within two of the settlement of such purchase,
regardless of wh-ether or when the security was sold. Specifically, the firm failed to fully and
. properly monitor whether the sale of one sccurity would settle before the payment.
deadline sct forth in Part 220.8(b) of Regulation T for the purchase of a different security. The
permitted it to improperly consider the purchase of one security in an account
with insufficient cash to be timely paid for as long as the settlement of proceeds from the sale of
another security of equal or greater value was pendjng at the time of the payment deadline. Part
220.8(b) of Regulation T prohibits such consideration of unscllied proceeds a.s cashpaY!!lent.
Legentfailed to adequately supervise transactions in securities in cash accounts to detennine (i)
whether securities were fully paid for prior to sale and (ii) whether securities were fully paid for
within two days of settlement. Additionally, Legent's writtensllpervisory procedures did not
adequately address the provisionS of Regulation T as described above. As a result, customers
were permitted to sell securities before they were fully paid. .
The foregoing acts, practices and conduct by Legent constitute separate and distinct violations of
Regulation T and NASD Conduct RuleS 2110 and 3010.
l.s'ent's SEC Rule 15cl3 Violations
Legent failed to make an acCt1rd.1e reserve computation as of February 28,2001. Legent failed to '
include an amount in Item 3 of the reserve' formul Ii, thereby understating total. credits by
$4,783,010.91. Based on lha.t computation, Legem withdrew $2,000,000 from its special reserve '.
account on . March 2, 2007. Legent subsequently recomputed the reserve compuration as of
Febtuary 28, 2007, and determined that the excess of total credits over total debits was
$6,056,683.75. ' This created a special reserve account deficiency of $4,406,374.32 and, after
some a.dditional modifications were made to the computation, the total special reserve account
deficiency \\fas $4,434,754:32. .,' ,
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Legcn.t also failed to make an accurate reserve computation as of April 28,2006. This related to
the fum having unduly concentrated margin balances in three customer accounts. . Legent
excluded these items from the com:p'utatiQn on the basis that they related. to a commingled
customer loan, which was a credit item in "the reserve fonnula. Legent erroneously offset the ..
required reductions in debits by attempting to demonstrate that the securities pledged were
included as collateral for a commingled loan. However, \lIlder the circumstances, individual
loans needed to be established for each account to demonstrate that 'the debits were directly
related to a credit item in the reserve fonnula. Further, the finn failed to obtain approval from its
designated. examining authority to pennit the concentrated debit balances to be included in its
reserve computation formula. This reduced customer debits by $13 ,R&O, 931, and led to a reserve .
computation deficiency of$?,842,S96 as of Aprj128, 2006.
Legent's conduct violated SEC Rule lSc33 imd. consequently, NASD Conduct Rule 2110.
B, Legcnl also consents to the imposition of the following sanctions:
A censure and monetary fine of $350,000.
Legent further consents La adopt and implement policies and proced.ures reasonably
designed to ensure compliance with Plllis 220.8(a) and 220.8(b) of Regulation T and to
have an Officer of the finn certify to FlNRA in writing no later than si-.;ty (60) days after
Notice of Acceptance of this Awe that the firm has adopted and implemented such
policies and procedures. Upon written request showing good cause, the FrNRA staff may
extend the certification deadline. .
Legent specifically and voll.iI1tarily waives any right to claim thaI Legent is unable to pay .
nOW or at any tiine: hereafter, the monetary sanctions imposed in this matter. Legent has
submitted an Election of Payment form showing the method by which Legent proposes to .
. pay _the fine imposed. .
The sanctions imposed herein shall be effective on a date set by FlNRA staff.
II. WAIVER OF PROCEDURAL RIGHTS
Legent specifically and voluntarily waives the following rights granted under FlNRN$. Cade of.
Procedure::
A: To have a Fonnal Complaint issued spedfying the allegations against Legentj
. B. To be notified of the Formal COmplaint and ha.ve the opportunity to answer the
allegations in writing;
C. To defend against the allegations in" a disciplmary hearing before a hearing:panel, to have
a written record of the hearing made and tei have a 'Written decision issued; and
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D. To appeal any such decision to lhc National Adjudicatory Council (NAC) and then to the
U.S. Securities and Exchange Commission and a U.S. Court of Appeals.
Further, Legent specifically and voluntarily waives any right to claim bias or prejudgment of the General
CO\Ulscl,the NAC, or any member of the NAC. in connection with such person's orbody's participation
in disCllSS\Ons regarding; the terms and conditions of this A we, or other considerarion of this A we,
inoluding acceptance or rejection of this AWe.
Legent further specifically and voluntarily waives any'right to claim that:a person violated the ex parte.
prohibitions of NASD Rule 9143 or the separation of functions prohibitionsof NASD Rulc 9144, in
connection with such person's or body's participation in discussions regarding the terms a;ndconditions
of this A we, or other considera.t.ion of this A we, including its acceptance or
III. OTlmR MATTERS
. Legenl understands thal:
A.
E.
c.
Submission of this A W'C is voluntary and will not.rcsolvelliis matter unless and until it
has becn reviewed and accepted by the NAC. a Review Subcommittee of the NAC, or the
Office of Disciplinary Affairs (ODA). pursuant to NASD Rule 9216;
If thisAWC is not accepted, its submission will not be used as evidence to prove any of
the allegations against Legent; and. .
Tf accepted:
1. this AWCwill become part ofLegcnl'spennanent disciplinary record and roay.
be considered in any future actions brought by FINRAor any other regulator
against Legent; . .. .
2. this A WC will be made available through FINRA's public disclosure program in
rcsponse to public inquiries about Legent's disciplinary !ecord;
3. . FINRAmay make a public announcement concerning this agreemenl and the
subject mlitterthcreofin accordance with NASDRule 8310 and.IM-83 10-3; and
4. Legent may not take any action or make or pennit to be made. any public
statement, including in regulatory filings or. otherwise, denying, ... directly or
indirectly, any finding in -tbls A WC or create the impression that the A we is
without factual Legent may not take any positiort in any proceeding
brought by or on behliltf of FINRA, or to which FINRA is a party, that is
inconsistent wich any pan of this A WC. Nothing in this provision affects
Legent's right to take legal or factual positions in litigation or other legal
proceedings in which FINRA is not a partY,
3175
'.,_0
Q8/22/2008 15:42 FAX 8184214518
Il.I 020/021
Letter of Aeeeptanee, Wavier and Conlent
,LepIlt Clearing LLC
PageU
D." Legmt may attach a Cotrective Action to this Awe that is a statement of
"demonstrable corrective steRs taken to preYcntfuture miscon.duct. 'Legent
ma.t it deny the charges or make any $tatem.ent that is inconsistent with the Awe
in this, Statement. This Statement does not cOnstitUte factual or legal findings by FlNRA,
nor does it reflect the views of FlNRA or its staff.
Legent" certifies that Legent, his read and understands all of the provisions of this Awe and has been"
given a full opportunity to 'ask questions about it; that Legent bas agreed to its provisions voluntarily; and
that no o:trei, threat, orpromi$e ()f any kind, other than the ter.ms set forth herein and the
prospect of avoiding the issuance of a Complaint, has been made to induce Legent to
" Reviewed bY.
Finn Name
Address
CitylStatelZip
LEGENT CLEARING LLC
By:
Title:
PhoneNumber
3176
, '
09/22/2009 15:43 FAX 8164214515.
FINRA
Letter or Acceptance. WaVier and Consnt.
LegtDt Clearing LLC
. Page 19
" A.cccprcd by FINRA:
3177
Signed" on behalf of Ihc Direc10r 0(0004.,
by delogated authority
crinc A Malfa "
Vice "Presid.i:mt lIlId ef Counsel
FI'NRA Depai1menr fEnfon::emenl
180l K SlrceC, NW
S PlOOf' .
Washington, DC 200Q6
(202) 974-28S3
.Zi
Regional Chief Counsel
F[NRA, Kansas city District
.120 WeitI2
1h
Stn:ct. Sllite 800
KinsAs City, MO 6410S
(816) 802-4712'
~ 021/021
_ TabC :.'''''' .
Exhibit 94 Q ( 6 l ( ~ i i i ) :
3178
November 12,2040 .
Via FacSimile TranSmission - (402) 384-6125
and First Class Mail
Mr. Jeffrey N. Sime, President
Legent Cleating LLC
9300 Underwood Avenue, Suite 400
Omaha, NE 68114
Re: NASD Exalnination No .. E04040084
Examination ofLegent Cleating lLC
Dear Mr. SiIDe:
This letter concerns OUI' 2004 examination of Legent Clearing LLC (Legent). The NASD staff has made
a preliminary determination to recommend that disciplina;ry action be brought against Legent for
violations of
(1)
. (2)
(.3)
(4)
SEC Rule 15c.3-.3 and NASD Conduct RUle '211 0 -- . Customer PIOtection '- Reserves and Custody
.. of SecUI ities; ..
: .. :
NASD Systems Programs Rules 6130 and 6620 and NASD Conduct Rule 2110 --- Trade
Report Input and. Iransaction Reporting; .
NASD Systems and PlOgrams RUle 6230 and NASD Conduct Rule' 2110 -- Transaction
Reporting; and
MSRB Rule G-14 - Reports of Sales or Purchases.
BefOIe seeking authOIization for the issuance of a formal complaint, we are plOvidingLegent the
0ppOltunity to make a Wells submission indicating why an action should not be brought against Legent
fOl some or all of the proposed alleged violations. AWells submission is voluntary and may address any .'
factual 01 legal pmtters lelatingto the proposed action, including whether the IUle violation occurred, or
any matter Legentwishes to have Wells submissions are not treated as settlement
documents. InfoImation in the Wells submission IllaY be used as an admission 01 for any other ptlrpose
.. deemed appmp.date: in connection with NASD disciplinru:y matters.. . .
If Legent to' make a subn'lission, we must receive it by Novenibel:' 26, 2004, to ensure that it
. accompanies NASD staffs request for complaint authorization The Wells submission must not exceed
35 pages
Kansas City District C>ffice
120 West 12th Street. Suite 900 tel 8164215700
Investor protection. Marketintegrity
Kansas City. MO . fax 819 421 5029
64105 WNW .nasd com
3179
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Mr Jeffrey N Sime, President
Legent Cleating LLC
Novembel 12, 2004
Page Two
Please disregard the earlier Wells letter sentthis afternoon.
JAZ:sdl .
3180
, .
. ,
November 12, 2004
Via Facsimile Transmission (402)
and First Class Mail
MI. Jeffrey N Sime, President
Legent Cleating LLC
9300 Underwood Avenue, Suite 400
Omaha, NE 68114
Re: NASD Examination No. E04040084
Examination of Legerit Cleating LLC
DeatMr. Sime:.
As . we discussed earlier this week, r am offering a settlement of the NASD disciplinary action against .
Legent Clearing LLC (Legent) 10 that end, I am enclosing a Lettet of Acceptance, Waiver and Consent .
.. (AWC) for thel'esolution of the charges cunently under consideration by NASD's Department of
Enforcement against Legent. The proposed sanctions in this A WC are a censure and a $20,000 fme
against By agreeing to this A WC, Legent will not be admitting any of the allegations or findings ..
If Legent agrees to this settlement, I will sirppoxt and seek final approvalofthe AWe. This AWC must be
accepted by the Department of EnfoIcementprior to submission to the Office of Disciplinary Affairs
(aDA) or the National Adjudicatory Council (NAC) Review Subcommittee. The NAC, .01 the aDA on
behalf of the NAC, must then approve the AWC before it becomes final. .
Legent may attach a Statement of Corrective Action, which mUst be limited to demonstrable steps taken to
con'ect a problem The Statement of Corrective Action will be attached to the AWe. Legent may a.lso .
separ'ately include a Statement of Mitigating Ci.fcumstances fOI consideration by the Department of
Enforcement., the ODA,andJor the NAC in determini.ng whether to accept the A WC, This Statement of
Mitigating Circumstances will not be attached to the A WC.
. .
In either the Statement of Corrective Action or the Statement of Mitigating Circumstances, Legent may
riot deny the charges or make any statement that is inconsistent with the settlement of charges, or that
suggests that the AWC is without factual basis. Each Statement must include the following legend: .
This [Statement of Cotrective Action] [Statement of Mitigating Circumstances] is
submitted by the Respondent, It does not constitute factual or legal findings by NASD,
nor dcies it reflect the views 6fNASD 01' its staff..
. . .
I am also enclosing an Election of Payment Form, which mu?t be submitted with the executed Awe
Payment should not be sent with. the executed AWe. Instead, once the Awe becomes final, the NASD .
Finance Department will contact Legent regarding payment. .
Investor protection. Market integrity
3181
KansasatY District Office
120 West. 12th Street SUite 900
Kansas City. MO
64105
. tel 816421 5700
fa)(816421 5029
wwwnasdcom
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, Mr. JeffIey N. Sime, President
, Legent Clearing LLC
Novembel 12,2004
Page 2
In addition, please review NASD Notice to Members 9742 which sets forth NASD's policy regarding the
publication of disciplinary matte IS and, among other things, authorizes NASD. to release public.
infOImation on any decision that the President of NASD determines should be publicized hi the public
interest.
If Legent decides to accept this settlement offel, please return the original, signed Awe and any
, accompanyirig to me by November' 26, If I have not heard from you by that 'date, I will
.conclude that Legent has rejected this settlement offer and will proceed to file a formal complaint in this'
mattet,.
Please call me at (816) 802-4712 if YOll have any questions regarding thismattel
'Jt\

JAZ:sdl
Enclosure
3182
NASD
LEITER OF ACCEPTANCE, WAIVER AND CONSENT
NO. C040400_
.To: Department.ofEmorcement
NASD
Oeadng LLC
Member (CRD 117176)
. . .
Pursuant to NASD . Procedmal Rule 9216 . Legent Oearing 1LC submits this Letter of
. Acceptance. WaiVeI and Consent (AWC) for t:b.e. prOposing a settlement of the alleged xule.
violations descIibed in Part IT below.. This Awe is submitted on the condition that, if NASD
will not bring any future actions against Legent alleging violations based on the same factual findings:
Legentunderstands that:
.1. Submission of this AWe is voluntaIy and will not resolve.this matter unless and untilithas bee;r;l
reviewedandaccepted by NASD's DeparfrneD.t of Bilfoi:cement and the National AdjudicatOry
. Council (NAC) Review Subcommittee o.r the Office of DisciplinaIy Affairs CODA). Pu:rSliant to
NASD Procedural Rule 9216; .
2. If this AWe is not accepted., its submission will not be Used as evidence to prove any of the
alleons againSt Legent; and . . . .
3. If accepted: .
a.
. This. Awe will become' PaIt of Legent' s discipIinaIy x:ecOtd and may be
considered in any future actions brought by NASD OI any otherregulatOI against
h. This . Awe will be made available through NASD's 'public disclosure Progtaui in
. response to public inquirieS s record; .
c.
d.
NASD may a public a:pnouncemen:t concerning this agreement and the subject
mattex thereof withNASD Procedural Rule 8310 and IM-8310-2; and
.Legent may not .tah:any actiOn make ox pemdttO be made any
inclumng fu regulatoJY filings or otheIwise. denying, directly or indirectly, any allegation
in this AWe or create theimpression that. the AWe is without factual basis. Nothing in
thiS affects Legent's testiinonial obligations 01' to take legal or factual
positions in litigation 01" other legalproceeclings in which NASD is not a party.. .
3183
.
Letter of Acceptance, Waiver arid Consent No. C040400_
Department'ofEnfQrcementv. Oearlng LLC
PageZ " . '
Legent also tniderstands that its experience in the securities industry and disciplinaIy
history tD;J.y be, factois that will be considered in (teciding whether to accept this Awe.
1hat experience and history are as follows:
. Legent has. been a member of NASD since June 4, 2002.. Legentacts as Ii clearing broker
offeIing its services to .introducing broker/dealers on a fully disclosedl:!asis from its main
offiCe located in Omaha, NebIaska... 'Legent has nOt been the' subject of prior formal
disciplitiaxy action by NASD, . .
, ' '
I. WAIVER OF PROCEDURAL lUGHTS
Legent specifically and voluntarily waives' the following lights grarited un4et NASD's Code af
PIocedui"e:' ' , ,
A. To have a Formal Complaint issued specifYing the allegations against
B,' To be n:o,tified of the Fonnal Complaint' and 'have the opportunity to the allegations in
writing; , ",
C: 'To defend against' the allegations in a disciPlinarY hearlng before a PaJlel, to' have a
record of the healing ma4e and have a written decision issued;
D. 'Io appeal any snch decision to the, NAC and then to the U.S 8ecuritiesat;ld' Exchange
Commissit;mand a u.s, Court of
'Fmthexmore, Legent specifically and vollintamy waives any right to claim bias or of the
Geneta1 Counsel, theNAC, OI'any of the NAC, in coimection with sUch person's or body's,
, participation in legarding the teIms and conditions 'of this, AWe, or othex consideration of
this AWC, including acceptance or rejection of this Awe,
Tn additioil. Lege,nt Specifically 8nd voinntarily waives 'any right to !=laim thai a' ,pexson vipIaterl the
parte prohlbitions of NASD Procedural Rule 9143 or the separation Qf:functiorts proln."bitionS ofNASl:> '
ProCedural Rule in connection:Wi.th such pelson's or body's p8Iticipation in discussions regarding
the tep:ns JcoIlditioDS of this AWe. or other consideration of this Awe, including itS acceptance 9I'
'rejection,
3184
Letter of AcceptaDce,Waiver and Consent No. C040400_
Department of EnfoI'cement v. Legent Oearing LLC
Page 3
IT.. ACCEPTANCE AND CONSENT
. .
.. A Legent hereby accepts and consents, without admitting or denying the allegations or findings;
and solely for the pmposes of this prm:eeding and any other proceeding brought by or on behalf
of NASD, or to which NASD is a party, priOI to a: heaJ:ing. and Without an adjudication of any
isSue of law or fact, to the entry' of the following findings by NASD:
. Customer Protection - Reserves and Custody of Securities
. SEC Rule 156.3 andNASD Conduct Rule 2110
1. On November 21, 2003, November ,zS, 2QO:? December 31, '2003, J311Uaty 16,2004, and
January 30, 2004. Legent deficiencies in its Reserve bank accourit, as identified on
Exhibit A and inco:tporated herein by reference. The deficiencies occU11'ed becaUse
Legent was fundfug its Reserve deposit requirement by . creating or inct-easing an .
overdraft position. The deficiencies Ianged $3.5 to $40.4 million
2. Such acts, pIactices and conduct constitute sep8I'8.te and distinct violations of SEC Rule
15c3-3 .and.NASDConduct Rule 2110.by Legent. ..'
Ttansaction Reporting
NASD Systems and Programs Rwes 6130 and 6620
and NASD Conduct Rule 2110
) ",. . . . .
3. For the time period ofNoveniber 1. 2002 JanuaI'Y 31, 2004, for 43 transactiOils
that were reviewed for proper: trade repOIting and order ticket infonnatiori, the following
. violatiOns detected: . .
. (a) 2S transactioDS did not have dOCumentation . evidencing the actual executioil
time;
(b)
(c)
(d)
.' . . .
38 tranSactioDS penolmed on. an agency basis but repoIted as principal
tIahsactioDs; . . .
four transactions were repOIted 90 seconds after execution and did not include
. the execution ti:i:De; and
three txansaetions inv,?lving OTC. secmities were improperly "bunehed."
4 Such ads. pIactices and 'conduct constitute separate and distinct Violations of' NAsD
Systems and Progiams Rilles 6130 and 6620. and NASD Conduct Rule 2110 by Legent.
318.5
Letter of Acceptance, Waiver and Consent No. C040400_
Department of Enforcement v. Legent Oearing LLC
Page 4
Transaction Reporting
NASH Systems andProglams Rule 6230
and NASD Conduct Rule 2110
5,. FOI the time peliod of Novembex' 1, 2002 through Januruy 31. 2004, for 47 corporate
bond transactions that' were reviewed fOI proper. TRACE repoltingand order ticket
information. the following violations were detected: .
(a)
(b)
(c)
(d)
47 transactions were reported using Legent's MPID instead of the in1l'Oducing
broker/dealer's MPID;' '.
. .
20 transactions were not repOtted within 45 minutes of the time of execution (or .
one hour and 15 minutes prior to October 1, 2003);
five trimsactions were reported bytbe contra party, but not reported by Legent;
and
two transactions wererepolted inaccmately due to data entry eIIOI'S.
6 . A review of an additional 20 corporate bond order tickets revealed that seven
transactions were not reported to TRACE.
7,Suchacts, practices and'conduct constitute separate and distinct violations of NASD
Systems and Programs Rule 6230 and NASD Conduct Rule 2110 by Legent.
Reports of Sales or PurchaSes
. MSRB Rule G-14
8, Fot the time period of'November 1, 2002 through January 31. 2004, fO! 46 municipal
trruisactions that weJ;'e reviewed for proper trade reporting and Older ticket infotmation, .
the following Violations were detected:
(a) . 46 municipal transactions were repolted using the wrong broket symbol; and .
(b) nine municipal transactions were reported late.
9 Such acts, practices and conduct constitute separ'ate and distinct Violations of MSRB
Rule G-14 by Legellt. '
B. Legent alSo consents to the imposition, at a maximum. of the following sanctions:
1. a censure and;
2.. a fine of $20,000, . .
3186
Letter-of Acceptance, Waiver and Consent No. C040400_,
Department ot Enforcement v. Legent Gearing LLC '
PageS
The sanctions imposed herein shall be effeCtive on a set by,NASDstaff. ' '
'm. D-TBER MATTERS
A. Legent understan4s that it may attach a Statement of eonective Action to this A W4 which is a
statement of demonstrable ,corrective steps taken to, prevent' future misConduct. Legent
, undeIstandS that'it may not deny the charges 01 make my statement that is inconsistent with the
A WC in this This Stateinent does not constitute factual or findings by NASD,
nor does it reflect the ofNASD or its staff. '
B " Legentagrees to pay my monehuy'smctions imposed on ii upon notice that ihls A WC has
accepted md that such payments are due and payable. Legent has lttachedan Election of
PI!-yment faIm showitJ.g the method by which it proposes to pay my fine imposed. '
. . . . .
, '
Co' Legent specifically and voluntarily waives any ,light to claim.that it is unable to pay, noW Or at
any time here3fter, 'any monetliIy sanction imposed in this matter .
Ugent certifies that this AWChas read and that all provisions of this AWC 'are and
that Legent has been given a full opportunity to ask questions about it, and that no offer, threat,
inducement, or promise of any kind; other ,than the. set fOIth herein. has been xrurde to induce
, Legem to submit it, . .
, I,.EGENT CLEARINGLLC
, . .
By:

." '-" AI '
Date
Je y No' IDle,President
Reviewed by:
, Counsel for Legent
3187
Letter of Acceptance, Waiver and Consent No. C040400_
Department of Enforcement v. Legent Clearing LLC
Page 6
Accepted by NASD:
Date Thomas D. Clough, Distnct Director
Signed on behalf of the Director of ODA, by
delegated authority
3 1 8 ~
ELECTION OF PAYMENT FORM '
, Legent intends to' pay the fine proposed in 'Section n of' theLef:teI of
Waiver and Consent by the following method one): '
" K A peISonal check OI bank check fO! the :full amount;
, 0 Credit card authodzation fO! the full amount;1
a The installment payment plan (only if approved by NASD 'staff and -the National
AdjudicatolY Council).2 ,
, ,11I"'h_-=L,c'.2), ;)60'1'
Date
" LEGENT CLEARING LLC
By:' J./L' ___ _
President
lOnIy Mastercard and Visa are accepted for, payinent by credit, card: ,Iftbis option is, chosen, the '
appropriatefoImS will be mailed to you, with an :iD.vOice, by NASD's ,Finance Department. Do not
include etedit card number on this form. ' '
irhe installment payment plan is only available for fines of $5,000 or more. , Cextain inteIest payments,
, minimum initial and monthly payments, and, other .requirements apply. You muse discuss these tenns "
with NAsD staff pdor to requesting this method of payment. '
. ' '
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318.9
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John S CaVanaugh
Senior Vice President
Compliance and Risk Management
Legent ClearinglLC
(402) 384-6102
john.Cav:tnangh@iegentclcaring.com
November 23, 2004
n- ***"-
(LEGEN1!
. me
Via Facsimile Transmission - (816) 421-5029
And Overnight Mail .
Mr Jeffrey A 'Ziesman, Comise1
NASD, Kansas City District Office'
120 We'st12
th
Street, Suite 900 . .'
Kansas City, MO 64105 .
Re: NASD Examination No .. E04040084
Examination bfLegeht ClearirigllC (CRD No 117176)
Letter of Acceptance, Waiver '<illd Consent
Dear Mr. Ziesman:
We are in receipt OfyOUItwO letters dated November 12, 2004, regarding the above-
referenced matter, as well as the propo"sed. PUrsriant to the letters, our subsequent
conversations, and NASD Legent Clearing submits the Letter of
Acceptance, Waiver and Consent(AWC) forthepi.upose of proposing settlement of the
alleged rule as described iri Part" n of the Awe .
If you have any questions regarding this letter or the enclosed AWe, please do not
hesitate to contact me at (402) 384-6102 ..
Sincer-ely,
John S. Cavanaugh
Legent Clearing LLC
Enclosuy'es
. 9300 UNDERWOOD A yENUE. SUllE 400 .. OMAHA NE 68114: PHONE: 402.384-6100" FAx: 402 384-6125 .. lOll Frum: 800811-3487
. . . .
SIPC,MSRB
3190 .
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Exhi'b:it 94 Q (.6)(ix)
'Iio
3191
-
NASD
NOTICE OF ACCEPTANCE OF AWC
Certified Mail, Return Receipt
Requested and First Class Mail
To: Mr JeffreyN. Sime,President
Legent Clearing LLC ' .
9300 Underwood Avenue, Suite 400
Omaha, NE 68114 .
Fmm: NASD, District No 4
120 W. Ii" Street. Suite 900 .
Kansas City, MO 6 4 ~ 0 5
Date: December 15,2005
Re: . Notice of Acceptance of Letter of Acceptance, Waiver and Consent.No E0420040084-02 .
Depa.rtnlent of Enforcement v. Legent Clearing LLC
Please be advised that your above-referenced Letter of Acceptance, Waiver and Consent (AWe)
has been accepted by NASD's National Adjudicatory Council (NAC) Review Subcornmittee,'or by the
Office of Disciplinary Affairs on behalf of the NAC pursuant to NASD Rule 9216. A c.opy of the AWC .
is enclosed herewith. .
You are reminded of. your obligation to update your Uniform Applica.tion for BrokerlDealer
Registration '(Form BD) to reflect the conclusion of this disciplinary action. Additionally, you must also
notify NASD in 'writing of any change of addressor other changes required to be made to your Form BD ..
. , . \ .
You WiUbe notified by the Registration and Disclosure Department regarding .sanctions and by
the Finance Department regarding the payment of any fme.. .
If you have any questions concerning. this matter, please call the undersigned at (816) 802-4112.
. cc: Ellen M. Wheeler: Esq.
Foley & Lardner LLP
321 North Clark, Suite.2800
Chicago, IL 60610
'. '3192
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sent By: NASD;
To:
8164215029;
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f NASD
. Nov-22054:21PM;
LETTER OF ACCEPTANCE, W AlVER AND CONSENT
, '.
Depa1'tment of Eni'or'tement
NASD
Legent Clearing LLC
NO. t04l0040084--02 ,
t

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. Member (CRn NQ_ 117176)


Page 2
'
Pursuanl to NASD Procedural Rule 9216Jt.egent Clearing: LLC (Legent) submits this Letter of'
Acceptance, Waiver a,nd Consent (A We) purpose of a settlement of the alleged rule
violations described in Patt 11 below. 'fhis AfVC is on the condition that. if accepted, NASD
will not bring actions against Legen! alleging based 011 the same factual f1ndings,
, " s .

Legent understands that:

f
t
1.
2.
J.
ofthis AWe is imdwill not this mattel' unless'amf until it has been
reviewed and accepted by of Enforcement and the National Adjudicatory
Council (NAC) Review SUbcommitte, 01' the OHice of lJisciplinary Affairs (ODA). pursuant to
NASD Procedural Rule 9216;s
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If tbis Awe is not accepted. its 5ul$ission will not be used as evidence to prove any of the
allegations against a.nd .
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a.
b.
c.
d,

This AWe will become Pari of Legent's perinanMt discipiinBIY record and may be
considered ill any future actio,s brought by or My other n:guial(1f" against Legent;
i
This A we will be nulde aVailable through :NASD's public disclosure program in
response to pt:lblic inquiries atfout Legent's disciplinary record:

i
NASD may make a public !his agrccmerlt and the subject .
matter !hereof in accordance With NASI) Procedural Rule 10 IUld TM-831 0-2; and

Legent may not take any Ol' make or pennit to be made any public statement.
including in regulatory otherwise, deny.mg, directly or indirectly. any a.llegation
in this Awe OI create the hns.ression thatthe A.we is without faclual basis, Nothing in
this provision affects Legent1> testimonial obligations or rights to take legal or factual
positions in litigation or procecdings:in which NASD isnot a party.
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Sent By:. NASDj 8164215029; Page 3

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Letter of Acceptance, Waiver and Consent No. 04.20040084-6Z
Department of Enforeement v. Legent Clea"ug
. .
PageZ

i
LegenL also understands that its in the securities industry arid .disciplinary .
histOry may be factorS that will be co'!\sidered iii whether to accept this Awe.
That experience and history are as foUtws:

I..egent has been a member ofNASD June 4. 2002. : Legem acts as a clearing broker
offering its services to introoucing bro!=erfdealers on a fully disclosed basis trom its main
office located in Omaha, Nebraska. har:! not reen. the subject of prior formal
disciptinary action by NASD.. . t .. .

s ...
I. WAIVER OF fROCEDURA.-O
! . .
i .'
Legenr specifically and voluntruily the "following righlS granted. under NASO's Code of
Procedure: i .

.. .
A. To have nFornial Complaint issued sppcii)"ing the it;
. . i .
B. Tobe notified of and havo the opportunity to answer' in
. Writing; I
,
C To defend again.st the allegations 'in disciplinary before a llcaring panel, to have a
written record of the healing made an4 to have ft wlltten :decision issued;' and
!
1.).. To appeal any such decision to tt+ NAt and then to the US" S""Curities and: Exchange
Commission and a u..s .. Court of' Appd,a)s ..

. .
Lesent specifically nnd voluntajily waives any right to "laint bias or prejudgment of the
General Collhsel .. the 'NAC. or Ilny member 1>1' the NAC. in with such pers011's or body's
in discussions regarding the tenrs and conditions of this A we, or other of.
this AWe, including acceptance OJ rejection op:his A we .
.
In addition. Legent specifically and voluntariy waives any ngiit to claim that a peTSOl1 violated the (!x
parte of'NASO Procedunl Rule 19143. or the separation of functions prohibitions of NASD
Prooedural Rule 9144, in connection with sucp petsolJ'S or body"s participation in discussion::;
the terms and conditions of this A we, orotIf-'t consideration of this AWe. including its acceptance or
rejection. .
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Sent By: NASD;
. 8164215029;
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Nov-22-05 4:21PM;
"Page 4
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Letter of' Waiver ud COllsentJo.
Uepartmat of Enfon;ement v. Leeent aeaf:g LLC \ .
Pap 3 f
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A." Legent hereby lIOCCptS and con$C1\ts, or denying the" allegations or findings,
and solely for the purposes of this and my. brought by or on behalf
of NAS!:), or to whie" NASD is aJ'ftlty. prior to a and.. without an adjudication of any
issue onaw or fact. to the entry of the following findings by NASO: "
I.
3.
4.
S."
. . .
Customer and or Securities
SEC Rule 15e3-3and NASD Co.dad Rule 1110 .
" i
On the mornings 2003, 21, 2004 amd . February 3. 2004, Legcnt
made Det deposits in the ,mount of $14,000,000 and" $5,600,000,"
respect.ivelY, into its Reserve! account. .
n)$ however, w " "comprised in of fUllds drawn on s
loan agreement witb the samt bank that malntline(l Legem's operating account (from
which the deposits 10 the R.esere account made) ..
The anws."on the WeIe not fCQOrd! on-Legmt's books Ul1til thc" end of the
business day on November! 1St . 2003,. 21. 2004 and February 3, zo04.
Accordingly. Legent's opcratta acQOllnt was bi.a net defioit position ilL time of the.
deposits to the Bank lPcount.." " . : "" "
Such acts, practices and conJct and distinct violatiC)ns of SEC R.ule
lSo3-3and NAsD ConductR..le 2110 by Legeni;. . .
. " . f " "..
Tntn ction ..
NASD stems and ro I'llMS Rules '1 0 and 6610
. and NABf Rule ....--
',. .
For the time period of 1. 2002. Japu8f,)I 31, 2004. for 43
that were reviewed for. prqpcf reporting order ticket information, the NASD
staff found the following viohf;ions: . .
. i .
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(a) ".25 transactions did 4'>L bave documeriUtiOll evidencing tlie actual execution
" i "" . : " ".
"f ." : . "
(b). 18 transactions on an :igency basis but reported principal
transactions;"! . : " .
. " .
(c) fo\ll' tranSactiollS we
J
r{>ported 90 sccdnds after- and dic3 not include
" \.he e:llecution time; " :" " "
s " . .
. ":.,
(d) three transactions
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sent By: NASO;.
. Nov-22-05 4:22P.M;
r:'age 5/8
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Letter of .. aDd CODSent 1'fo. E0420040084-02
Deparlment of EnlorcemeDtv. Legent C1ea'l.ugLLC
Page 4 .J :
B.
6.
7.
8.
9.
10
11
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Such acts, practices and constitute' and distinct violrillans of NASD
SyStems and PfogIams Rules 61.3.0 and 6620. amfNASD Conduct '{{ule 2110 by Legenl .
. i .
. . Traa" diaD Reporting; .
NASD St' aad RUle 6%30
and NASD Conduct Rule lUO
i ' . . .
For the timepctirid of NovcEebcr 2002 January 31,2004, for 47
bond transactions that were for prop' TRACE 'reporting and ordertieket
infonnation, the foUowing vio ODS were .' .
. .
f ' .
47 transactions were lePo.ted using Legent's MPID instead at the introducing
broker/dealer's MPJD;I '. . .
. '. ..' t . :'. . . .
Ca)
(b)' 20 LrailllactioOls wi:n: npL within:45 minutes oflhe Lime.: ofcx.ccut.ion (or
one 'hour and IS minurr prior to 1,2003); '.'
(c)
tranRaCtions by party, but not reported by
. t!: :
(d) . lWO mmsactions were b,orted due to data. entry errors.
. : . .
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A review of an additiOnal i20. corporate boiKt order tickets revealed seven
tnhsa:ctions WCr n01 to 'TRACE.: . . ,
acts, and constitute s.te and distinct of NASD
Systems and Programs Rule 6'0 and NASI.> Coaduct R,ulc 2110 by Lcgent
i :
Reports orPun:b.aks
M.. BRule G14
For the time period l. 2002, throlgh January 31, '2004. tOt 46 municipal
transactions that reviewei:l for proper teporting and order ticket information, .
the following violations were detected: . '. .
Ii .
! . .: .
46 municipal transacti;ns were reponed ?sing the wrong broker symbol; and
nine yvcre late.
. .
Such acts, practices and c.on+t constitute and dilltincl violatioIUl of MSRB
RuleG .. 14byLegent f . . ...
i .' '.
(a)
(b)
i .:
Legent also consents to the a following
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Sent By: NASD; " 816421'5029;



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Nov2205 4:22PM; page B/B
Letter of Waiver and ConseJit EU420040084--bl
Department of Enforeerileat v. Legent LLC' .
Page-5
A.
B,
c.
2. a fine of$40,Opo
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Ihe sanctions imposed herein shall on a datt! set by NASD staff.

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; .'
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I..egent understands that it may ofCdtrective Action UJ t.his AWe, which is a
statement of demonstrable correctife steps taken prevent future misconduct. Legent
understands that it may not deny the or make any statement that "is inconsistent with the
A we in :his Stater.nen:- !his Statemfnt. does not factual or legal finding.,; by NASD.
not does It reflect the VICWS or NASD or Its staff.
. . . i
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Legent agrees to pay any nwnetary safIctions imposed on it upon notice !hat this A We has been
accepted and that such payments ar4 due and payable., Legent has attached an Election of
Payment fotm sho,vinS the method by rhich il proposes pay tine imposed:
# "
Legent specifically and voluntarily wlives any right to that it is unable to pay, now or at
any time hereafter,any monetary imposed in thiS l'!latter" . . .
. ,
J:.cigcnt certifies tha.t this A we has been and that aU provjsions of this A we are understood, and
. that Legent n"!S been given a full to ask questions about it, and that no offer, threat.
inducement, or promise of any lcind. other 'an the terms herein, has been made to "
Legent tosubmitit." i . . "
I LEGENT LLC
;
Date
Reviewed by:

Counsel fur Legel1t
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sent By: NAEm i
Accepted hy NASD:
Date
8t 64215029 j Nov-22-D5 4:22PM;
. .
Signed on behaif of' tbe Director of ()DA,
by delegated .
Thomas D.
llO West 12111 Suite 900
MO 64105
(816)
319.8
Pa.ge 7/8
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Nov-22-05
ELECTIO,OF PA YMENJ' FORM

Page SIB
Respondent Legent intends to pay fine proposed itt Section II of bu.cr of Acceptance,
Waiver and Consent by the following method Icheck. one): . ..
.
Date
X A personal check or bank cheik the fuU
i .
CJ Credit card authorization full amol,lTlt;l. .,
, i
rhe installment payment plln (only if apprc.ived. by NASD staff and the National
Adjudicatory Council).'- I

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J'efieYj'iime, President .-
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10nly Mastercard and Visa arc accepted fot pa.yment by cre!:!h card. If this optiOll is chosen, the
appropriate forms will Finance Department Do not
includeyoun:redit card number on this forln;
. .
); ..
payment pflln is only available fot' fines of 55,000 or more. Certain interest payments,
minimum initial and monthly payments, nnd.pther I'equiretnenis apply You mustdiscl1ss. these tetms
with NASD stan-prios'to requesting this methqd of payment .
. .
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'Exhibit 94 Q(6)(x)
3200
-l.
August 23,2007
Mr. Greg Luken, Compliance Specialist
Financial Industry Regulatory Authority
120 West 12th Street, Suite 800
Kansas City MO 64105
. Re: Examination No. 20070071330
Dear Mr. Luken,
Pursuant to your request $ted August 17, 2007 on the enclosed CD you will find the following:
Customer account statements for representatives assigned to the Cambria' Capital branch
location where Representative Joe Padilla resided. The accounts on the CD sold over
5,000,000 shares of anyone security. priced under $5.00. The account statements are
from January 2007 through JUne 2007. If no activity occurred during a monil?-,then a
statement did not produce.
Should you have any que'stions, please contact me at 402-384-6119 or Craig Black at
402.384.6102.' . .
Enclosure
Cc: Mr. Joe EdmJlD.dson
Foley & Lardner LLP
Washington Harbour
3000 K Street, N.W. Suite 500
WaShington DC 2007-5143
9300 UNDERWOOD AVENUE. SUlTE400 OMAHA. NE 68114 PHONE: (402) 384-6100.- FAX: (402) 384-6125
MEMBER FINRA. SIPC, MSRB
3201
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Financial, Industry Regulatory Authority
August 17, 2007
Mr. Craig Black
Chief Compliance Officer
Legent Clearing
9300 Underwood Avenue, Suite 400
. Omaha, NE 68114
Re: EXI!-mination No. 20070071330
Dear Black:
.
u\\'t "
In connection with the above referenced examination of Legent Clearing (Legent), we request the
following documentation be provided. '
. Please provide the customer account statements for the time period January 2007 through'
June 2007 for custotner accounts meeting the, following criteria:
Customer assigned to the Cambria Capital, LLC branch location where
Representative Joe Padilla resided and that sold over shares of anyone security
priced unqer $5.00 per share the time period February 2007 through March 2007.
. ..
This request for information'ls made pursuantto NASD Procedural Rule 8210 and your response
should be received in this office by August 29. 2007. Should you have any questions. please
contact me at (816) 802-4750.
Sincerely,
J:w;
M
7r
Greg Luken
Compliance Specialist
GUcw
Cc. Mr. Joe Edmundson
Foley & Lardner LLP , '
Washington Harbour
, 3000 K Street, N.W., Suite 500
Washington. D.C. 20007-5143
Investor protection. Market integrity.,
320,2
120 west 12th Street t 8164215700'
Suite 800 f 8164215029
CIty. MO wwwfinra.org
64105-1941
Aut 03 200? 3:40PM 'NASD
Finlll'ldallndumy Regul:atcHy Authorfty
Mr. Craig Black _
TO
Chief Compliance Officer
COMPANY Legent Clearing ,
FAX 402-384-8125
TEL
DATE August 3, 20P7
NUMBER OF PAGS INCWDtNCi CO\IU 2
See attached letter
l1M!Stor protectIon. Market integrity.
320,3
FAX
TEl.
.J
816-.421-5025 p.l
FACSIMILE
Greg Lllken
Compliance Specialist
816-421-5029
816-802-4750
This tal( transmittal Is strictly confidential and Is Inl:ended
solely for the person or ol8anization to whom it is ~ d r e , s e d .
120 West l2th Stn:et
Suite 800
Kansas City. MO
64105-1941
1: 816421 5700
f !flo 421 5029
wwwfinra.org
,
t
Aue 03 2007 3:40PM NRSD
FlnraY'
Flnandalln:ildy , .,Iatory AutJ:acity
Via Faaiiaile ((1402) 384-'125D alld First 0 .. U.s. Mail
August 3, 2001
Mr. Craig Black
Chiof Compliaoco Oftlcei'
Legent Clearing
9300 Underwood t'.venue. Suite 400
Omaha, NE 68114
Rc: NASD Examination 20070071330
Dear Mr. Black:
In connection with the above referenced examination ofLe&ent Clearing. LLC (Legem). we
request the. documentation be provided: .
Please provide copies of tho 'due dilige:occ files (initial and on-going) for former Legent
correspondents SaJomqn Grey Financial and GreatEastem Secwities. Inc.
p.2
Please bring this documentation the District Offu:e'tli.e morning of August I. 2007 prior to the
Oo-tbc-Record I estimony ofMi:. Fnmk McPartland. ro expedite this n:quest, if'you are in .
agreement, we would &e willing to R:View the contents oftbe original files in the District Office.
We would.then copy selected documents as needed and return tho .origiQaIs to Mr. McPartland.
Please crontact me at (816) S02-47S0 with any qucstiona rcgardingtlUs request..
Sincerely,

Greg Luken . {
Complianca Specialist ,
GUcw
Investor protection. Market inbegrity 120 West 11th Street . t. 8164215700
Suite 100 f 816421 5029
Kansas City.MO W'l'lWfin.ta Dra
64105-1941
3204
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':.FOLEY
FOLEY & LARDNER LlP
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VIA OVERNIGHT DELIVERY.
Mr. Jeffrey Dean
Special Irivestigator
Department of Enforcement
NASD
Chicago District Office
55 West Monroe Street, Suite 2700
Chicago, IL 60603-5052
July 18, 2007
Re: Legent Clearing LLC(NASD No. 20060068675)
Dear Jeffrey:
ATTORNEYS AT LAW
WASHINGTON HARBOUR
3000 K STREET,N.W., SUITE 500
WASHINGTON. D.C. 200075143
202.672.5300 TEL
202.672.5399 FAX
www.foley.com
WRITER'S.DIRECT LINE
202.672.5354
jedmondson@toley.com EMAil
CLIENT/MAnER NUMBER
0533520110
On behalf of our client, Legent Clearing LLC ("Legent" or the "firm"), we are
responding to the Staff s letter request dated July .11, 2007. The enclosed documents have been
labeled LC 001354 - LC 0001567.
Request No.1
Enclosed (LC 001354 - LC 0001363). To avoid confusion, the three SAR filings
referenced in the seventh entry on the document produced as LC 000002 - 000003 have been
produced.
Request No.2
Enclosed (LC 0001364 - LC 0001567). The documents produced include not only
research materials gathered as part of Legent's inquiry, but also certain documents relating to SEC
and NASD requests for information. Included in these responsive documents is a: CD-Rom
containing two Excel documents maintained in electronic form (LC 0001567).
. .
The documents produced in response to Items 1-2 were collected by or under the
direction of Ms. Gayann Henn. .
* * *
While we recognize that the NASD does not itself afford an'y special confidential
treatment to documents submitted by members' or associated persons, we also recognize that in
certain instances theNASD Staff may deem it necessary to provide copies of such documents to the
SEC or other agencies. In tha.t event, we request that the Staff proyide such agency with a copy of
this letter, by which we request that the documents submitted herewith, and any copies thereof, be
BOSTON
BRUSSELS
CHICAGO
DETROIT.
JACKSONVILLE
. LOS ANGELES
MADISON
MILWAUKEE
NEW YORK
ORLANDO
SACRAMENTO
SAN DIEGO
SAN DIEGO/DEL MAR
SAN F'RANCISCO
SILICON VALLEY
3205
TALLAHASSEE
TAMPA
TOKYO
WASHINGTON. D.C.
WASH_1970361.1
/" .
:FOLEY
FOLEY &. LARDNER LLP
Mr. Jeffrey Dean
July 18, 2007 .
Page 2
.,
afforded confidential treatment by such agency pwsUant to ITC.F.R. 200.83 and/or the Freedom
of Information Act ("FOIA"), 5 U.S.C. 552. Because the enclosures constitute an investigatory
record obtained by the agency, it is subject to the exemption from mandatory disclosure under
Exemptiori 7(A) of the Freedom ofInformation Act, 5 U.S.C. 552(b)(7){A) (1976). See, e.g.,
National Labor Relations Board v. Robbins Tire & Rubber Co., 437 U.S. 214 (1978); Chilivis v.
Securities & Exchange Commission, 673 F .2d 1205 {I I !Ii Cir. 1982r In addition, we believe that
Exemptions 4, 7(B) and 7(C), are also applicable, as well as the protections available under the
Privacy Act of 1974,5 U.S.C. 552a.
Accordingly, we expect that the originals and all copies of the enclosures will be
in a file by such agency arid that access by any third party nota member of the agency or
its staff will be denied. Should the. agency receive any request which would encompass this letter
. andior the enclosures, either pursuant to the Freedom of Information Act or otherwise, we expect
that we will be given an opportunity to object to such disclosure. Furthermore, should the agency be
inclined to disclose this letter and/or the enclosures to any third party, it is our expectation that, in
accordance with normal agency practice, we will be given ten business days' advance notice of any
such decision to enable our client to pursue any remedies that may be applicable. See, e.g., Chrysler
Corp. v. Brown, 441 U.S. 281 (1979). In such event, we requestthat you telephone the undersigned
rather than rely upon the United States mail for such notice.
Further, to the extent that the materials are provided to the SEC, we object to the .
disclosure of the enClosures pursuant to the "Routine Uses'ofInformation" set forth in the document
captioned "Supplemental Information for Persons Requested to Supply Information Voluntarily or
Directed to Supply Information Pursuant to a Commission Subpoena." In addition, we request that
this letter and the enclosures, and all copies thereof, be retunied to the undersigned by the SEC at the .
conclusion of the inquiry .
. Please do not hesitate to contact me at (202) 672-5354 if you have any questions or
need additional information. .
JDED/vdta
Enclosures
cc: Mr. Craig Black (w/o encls.)
Sincerely,
3206
WASH_1970361.1
r ..
)iSffI4
Sent via Facsimile and First Class Mail .
July 11,2007
Joseph D. Edmondson,.Jr . Esquire.
Foley & Lardner. LLP.
Washington Harbour
3000 K Street, N. W.
Suite 590
DC
RE: NASD Matter No. 20060068675
Legent Clearing, LLC (Legent)
Dear Mr. Edmondson:
PUrsuant to NA.SD Procedural Rule 8210. the Enforcement Departpient requests that Legent Clearing
. LLC produce. on or before July 25, 2007, following documents and information:
L The two Suspicious ActivltyReports discussed with.counsel on July 6, 2007, described on
the first page of the list of SARs prC?vided to NASD, Bates numbered LC 000002 - LC
000003.
2. Any and all documents related to theSEC's inquiry(ies) of Legentregarding the customers
who were the subjects of the SARs described above (as well as the SAR produced to NASD
Bates numbered LC 000075 - LC (00078) which was discussed by Gayann Henn during her.
July 6. 2007. on-the-record .
Please Bates each page of each document produced and provide a production :log that lists the
documents. indicating which of the above numbered requests.the documents (identified by Bates
. range) are responsive to .. Include in the log the name of the individual ernployee(s) of Legent who
prepared. collected or providec;1 the document(s) produced. .
If responsive information or dOCuments exist, but are not produced, please provide an explanation. If .
a privilege is asserted. provide a privilege log that includes a short description of the document(s)
being withheld includes: nurnberof pages. date prepared/sent, names of all authors, recipients
and copied individuals. and specific privilege asserted. .
In responding to this reqiJest please note the following:
Under Rule 8210. you are obligated to respond to this request fully, promptly, and without
qualification. You are also obligated to supplement or correct any response that you later learn to
have been incomplete or inaccurate, If you withhold any responsive document or information, you
must specifically identify what you are withholding and state the basis for your doing so. Any failure
on your part to satisfy these obligations could ex.pose you to NASD sanctions, ilicll!ding a permanent
bar from the securities industry. .
As used in this request. the term "document" means writings, drawings, graphs. charts. spreadsheets,
photographs. microfilm, microfiche and any other data compilation or communication from which
information can be obtained. specifically includes. without limitation. communications
memorialized Qr stored in any storage medium. including. mechaniCal or elec.tronic form such as email
.. Chicago Dis1rid Office . tel 312 899 4400
Invjlstor prote(liaK> integmy
55 West Monroe Street, Suite 2700 . fax 3126060742
Chicago, It www nasd.com
, ' "
Mr. Joseph D. Edmondson, Jr.
July 11, 2007
Page 2
and voicemail messages. "Document" also includes dmfts and any non-identical copies. If any
'document responsive to this request consists of electronic d,ata, please produce it on CD-ROMs in a
form thllt is readable in a commercially available program like those ,in the Microsoft Office suite: If
it is not feasible for you to do so, please call me to discuss alternative arrangements.
As a matter ofpolicy,NASD conducts its investigations on a non-public basis. Nonetheless NASD
may sometimes provide access to its investigative files to other regulatory and law enforcement
authorities, and. if subpoenaed, to litigants in civil actions .. In addition, pursuant to the NASP Code of
ProcedUl:e, NASD is required to produce documents and transcripts to respondents during discovery.
We will not (1) for confidential treatment of any information or. documents you
provide in respOnse to this request; (2) give you notice of any subpoena or access request we receive
that encompasses any such information or documents; or (3) undertake to return documents when this
investigation is completed.
, '
This inquiry should ,not be construed as indicating that we have determined that any violations of
our rules have occurred. or as a reflection upon the merits ofthe fiCin' or' any individual involved.
If you have any questioQs,feel free to contact me at 312..,8994678.
Sincerely,
,"2/0
2
--
Xeffniy Dean, '
. Speciallnvestigator
Department of Enforcement
320.8
Sent By: NASDi

tro:
. I - . .
D. Edmundson, Jr., Esq. (202) 6725399
IFroID: Sberri Lofton for Jeff Dean
IPhone: 802-:4711 IF,ax:
!pages: 3 Date;
IRe: GaYIlDD Marie HeRa
l:.-__ ., Exam No. 10070071330
.. ..
.
(816) 4114519
.
July 2, Z007
-
..
,,-
-
120 West 12lh Slieel
SuIte 900
This fllX 1rarW!ib(iR,1])'k:lly conlldcnClai ;ancl 1$
sol.ly 100!he p ..... ,," or or9""lz .. l"" '" .
",,"om n 18 sddrlO$ltld. If YQ<.I na-;e r'IOI re<: .. IVed
1111 pags& ellhis fax \",,!loS1.or protection, M<lrke1 integrity.
Kansas City, MO

3209
tel 816421 5700
ta;.; 8164],1
W(ffl,nasd,com
Page 1
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Sent By: NASD;

JUl-2-VW2: 1 BPMj
Page 2/3
July 2, 2007
Mail - Return Rcccil!t
Requested ad First Class Maii
Ms. Gayano Marie Henn
Legeot Clearing
9300 Underwood Avenue. Suite 400
Omah", NE68114
Re: NASI} Maner No. 20060068675 .
Clearing
Dear Ms. Heno:
NASD is iilVCStigating this matter .lo uclA.Tu.ine whether violations of its ruicli or tJ:te federal securities
laws rowe occurred. In connection with our and .pursuant to NASP Procedural Rule
8210, we< retlucst that you appear on lI'ridMY, July 6,2007, at a.m., at the Omaha Marriott, I 02()O
Rl:gcncy. Circle, Omaha, NH 68 J 14, Sl) that we may take your teslimony under oath on oral
examinarion.
Please note the following:
Undt=r Rule. 82lCi, you are< obligated kl appear IU requestec;i and to anSWef()ur qU(,.'Stionli fully;
"ccurcltely, and truthfully. . If after t.cst.ifyingY0l;l become aware that any of your IA."l:ftimon,Y W8!1
incomplete or you must contact u.c; prQmptly to supplemfmt or correCl it. A failure on your
part to these obligations could expose you to NASD sanctiOns, ineIllding a. permanent bar from
< ,the sccuritie$l < <
YOll bl: Itccornpllnit:U by counsol when we your 'c$limony.
NASD staff will consider assertions or common law testimonial privileges such liS auorncy-clicnt
privilege.< Because NASD is not II agency, however, the t:ifth privilege
against self-incrimination does not apply in its investigations and to answer a
quclltinn ba.-;ed on an of milt privilC:b'C Ii violation ofNASDPmceduraJ Rule 8210
nnd may ex.pose you to N.(\.SLl sanctions, !neluding a permanent bar from the securities industry
Your will be hy a court reporter. NASD staff' will control thc.record lind the
rep<'lrler will Mlgl) off the record unless directe(,i 10 do liO by NASD !Starr. Y(lU (lr your attorney may
ask to go ot1" the record, and the NASI) I:rnp\uyec: tak.irlg your testimony wlU determine whether Ot" Tlot
1.0 grant the request
lr'lveUor protedJon.. Milrkt't integrity.
3210
tel 816 5700
170 Wpo;r 17Th 'I1I!tP Ron r.tx R1n 4} 1 'iO;>q
Cilv. MO 64105 wv.w.tI.lSd.com<
, .
Sent- By: NASDj
Ms. Gayann Marie
f .egent Clearing
July 2,2007
Page 2
8164215029j
Jul-2- 2:1BPM;
The court reporter will not release the your testimony to you without NASD
authurizaTion. If you wish 10 obtain the trans(.,.TIpt, you or your attorney may seek such authorization
by sending a wrilten request to NASn employee who took. your testimony. If your request is
you may then purchase the transcript from the cOUTt T'1'0rter. If your request is denied, you
may still review the transcripl at NASD's offices. NASD stan'does nol release copies of exhibits to
testimony hut they are available for review at NASD's oft ices. .
As a matter of policy, NASD ctmtiuct.'; its investigations On a non-public basis. Nevertheless, NASD
may provide access to its investigative files to other rtlgqlatory and law
authorities, and, if subpoenaed, to liLigarm; in civil actions. In pursuant tolhc NASDCodl: of
P"ocedure, NASi) is required to produce documents and transcripts to respondents during discovery.
We will not entertain requests fOT contidential treatment of the reeord of your wstimony or give you
notice of any subpoena or acceSs reql1est we receive that encompasses it. .
'" ..
finally. this request should nol be construed as ,an indication that NASD or its staff hils delemlincd
that any vi111atiom of federal securities Jaws or NASD rules have occurred. Please call me al (312)
899-4678 if you have any

r .. ean . {'J112 \
pcciallnvestigator . J 17 -:_J
JWD:sdl
cc; Via Facsimile Tranllmissiol1- ("202) 672-5399
und First Class.l'viail
D. Edmondson, Jr., Esq.
Poley & Lardner, LLP
3000. K N.W., Suite SO{}
Washington, DC 20007-5143
3211
Page 3/3
July 2, 2007
Certified Mail - Return Receipt
Reg uested and First Class Mail
Ms. Gayann Marie Henn ' '
Legent Clearing
9300 Underwood,Avenue, Suite 400
Omaha. NE 68114
Re: NASD Matter No. 20060068675
Legent Clearing'
Dear Ms. Henn: '
NASD.is investigating this matter to detennine whether violations of its rules or the federal securities,
laws have occurred. In connection with our investigation, and pursuant to NASD Procedural Rule
821 O,we request that you appear on Friday, July 6,2007, at ,9:00 a.m., at the Omaha Marriott, 10200
Regency Circle, Omaha" NE 68) 14; > so that we may take your tl;stimony,under oath on oral
examination. ,
Please note the following:
Under Rule 8210, you are obligated to appear as requested and to answer our questions fully,
accurately, and truthfully. If after testifying you become aware that any of your testimony was,
or inaccurate,You must contact us promptly to supplementor correct it. A failure o,n your
part to satisfy these obligations could expose you to NASD including a penn anent bar from
the securities industry.
You may accompanied and represented by counsel when we, take your testimony.
NASD staff will consider assertions of common law testimonial privileges such as attorney-client
Because is not Ii governmental agency! however; the Fifth Amendment privilege
against self-incrimi'nation does not apply in its investigations and proceedings. Refusing to answer a
question based on an assertion of that privilege constitutes a violation Of NASD Procedural Rule 8210
ahd may expose you to NASD sanctions, a 'perrnaoen,t bar from the securities industry. '
Your testimony will be transcribed by a court reporter. NASDstaff will control the record and ttie
reporter :will not go off the record, unless directed to do so. by NASD staff. You or your attorney may
ask to go off the record, an,d the NASD employee taking your testimony will whether or not
to grant the request. '
3212 ,
Investor protection. Market Integnty,
120 West 12th'Street. Suite 800
,Kansas (ltv: MO 64105
tel 816421 5700
fax 816421 5029
www ("OJ '
Ms. Gayann Marie Henn
LegentClearing.
July 2, 2007
Page 2
)
The court reporter will not release the transcript of your testimony to you . without NASD
authorization. If you wish to obtain the you or your attorney may seek such authorization
by sending a written request to the NASD employee who took your testimony. If your request is
granted, you may then purchase the transcript from the court reporter. If your request is denied, you
. may stillreview the transcript ,at NASD's NASD staff does not release copies of exhibits to
testimony but they are available for review at NASD,'s offices.
As a matter of policy, NASD conducts its investigations ona non-public basis. Nevertheless, NASD
may sometimes provide access to its to other regulatory and law enforcement
authorities, and, if subpoenaed, to litigants in civil actions. In addition, pursuan.t to the NASD Code of
Procedure, NA$D is required to produce documents and to. respondents during discovery.
,We will n91' entertain requests for confidential treatment of the record of your testimony or give you
notice of any subpoena or access request we receive that encompasses it.
*.*
Finally, this request should not be construed as an indication that NASD or its staff has determined
that any violations offederal securities laws or NASD rules have occurred. Please cali me at (312)
899-4678 if you have any . ....
J
Siy,ceVtj ...
.. {:\11 ?\
. pecial Investigator .. J'7.. .J
lWD:sdl
cc: Via Facsimile Transmission - (202') 672-5399
and First Class Mail
Joseph D. Edmondson, Jr., Esq.
Foley & Lardner, LLP
3000 K N.W., Suite 500
Washington, DC 20007-5143
3213
sent By: NASDj

Page 1
To: D. Edmundson, .Jr., 'Esq.
From: Sherri Lofton for Robert 1'. Edler
. -
rhone: r:816) 802-4711 Fax:
w.
Page!: J Date:
fRc:
Frank Juhn McPartlAnd
'---.-
Exam No. 20070071330
..:..
-
(202)672-5399
.(816)411-4519
June 22,2007
120 West 12th Slreel
Suite !lOO
TIlII oon/lc:ler'Jfiall!l1d i.
i1tantSed IOlely fOr !II. p,,"on or
Wl11lm K 18 tr yQII nave !IOI /ecIlivt(j
III! psoea 01'11111 fl. pi ..... eaJl e11S 01 57011.. Investor protlilttlon.. integrity.
Kansas City, MO
6410S-19)()
3214
tcl816 421 5700
1ax 816421 5029

sent By: NASD;
June 22, 2007
Certified Man - Return Receipt
Requested and First Claw Mail
Mr. Frank John McPartland, President
Legem Clearing
9300 Underwood A venue, Suite 400
Omaha, NE 68114
. Re: NASU Matter No. 20070071330
Legent Clearing
Mr. McParlland:
8164215029; Jun-22-0 : 1 BPMj Page 2/3
NASU is investigating this maller to determine whether violalilms of ib rules or the federal securilit;s
laws hl1ve: ol:.!currcd. In connection with our invesligatiun, and pursuant to WASD Prucedural Rule
8210, we request that :you at our offices located at 120 West 12th Street, Suite 400, Kansas
City. Missouri on Wednesday, 8, 2007 at IIJ:O(} 8.m., so that we may take your le:::timuny
under muh (,)n (Jr.d tlX<'lIIlination. .-
.rlcase nole the fbllowing:
Under Rule 8210, you are obligated to appear 3.<; requeRtedand to answer our questions fully.
llccurat.ely; and tJ1.1thfuJly. If after you become aware that any of your testimony Was
inoumplele or inaccurate, you must contact us promplly tu supplement or correct it. A failure on your
part to satisi)' these obligations could expose you to WAST) sanctions, inclUding a permanent bar froih
the securities industry.,
Ynu may he u-\!compunied and represented by counsd whcn we take yourte$tim(lny.
NASD. staff will consider assertions of common . law testimonial priyileges such as attorney-client
privilege. Because NAsn is not a governmenl.tl agency, 'however, the Fifth Amendme,nt privilesc
against Relf.incrimitllltion does not apply in its iTlvesti!f<ltionsand proceeding!;, Refusing to answer 3
q1,lestioll an assertion oftbnt privilege con8lilutcs It violation ofWASD Pruccuuntl Rule Ii210
and m<ty expose you to NASU sanctions, including a permanenl bar frOln the securities industry .
. Your testimony will be transcribed by a court reflortcr. NASIJ staff will control record nnd the
reporter will not go off the record ulIless d5n:cled to do so by NASI.) lltaff.You or your attomoy may
ltI go (}ffthe record. and !he NAsn crnployee takingyuur' testimony will determine whether or nol
to b'Tant the request.
!!OI 216 -I.?1 57rXl
120 WI"'I1'lIrh <;tll"l;'t. Suit!? W)O lax 816 421 5MQ
Inltestor protection.
3215
City. MO 041 US v..ww.nasd,corn

sent By: NASC;
"
81 6421,5029; Page 3/3
Mr. Frank Joml MCParLland, President
T ..cgent Clearing,
June 22, 2007
Page 2
The court reporter will not release the transcript of your' testimony to you without NASD
authorization. If you wisb to obtain the transcripl, you or your attorney 'may seek such Huihori7..ation
,by sending a written request to the NASU employee who took your If your nKIl1cst is
granted. you may then purchase the transcript from the court reporter. If your request is you
rimy still review the tranllcript at NASD's 'offices. NASD staff dpcs not relea.<;t 4:upics of exhibirs lo
testimony but they are availAble for review at. NASD'5 offices. '
As a matter of policy, NASD conducts its investigations on a non-public ha.Qil1. NASD
may sometimes provide access to its investigative liIea to other r:e1,'lJlo.toryand law enforcemc:qL
authoritic)s, .rnd, if subpowaed, to litigants iTl civil actions. In addition, pursuant to the NASD Code of
Procedure, NASD is reql.lii1:d lU produce documents and traltscriptsto respondenill during discovery.
We will riot entertain 'requests -for confidential treatment of the of your testimony or give you
nutice of any subp()("'1Ia or access request we receive thal i1.
* *,*
Finally. this request should not be construed as an indication that NASD or its siaff ha.c; determined.
that, any violations of' fcdcrdlsecurities laws or NASD rulCR have occurred. call me at (8 J 6)
802-474 J if you have any questions.
, . Sincerely,

Robert P.dler '
Spcciallnvestigator
RPE:sdl
cc: Via FacSimile TransmisllioD - (101) 672-5399
aad First (,,11\$11 Mail ,
'Josclih D. Edmondson, k, F.sq.
Foley & Lardner, J .. LP
3000K S1..rcf:1, N.W., Suite 500
Washington, DC 200075143
"'
3216
Sent By: NASDi
,/I"

Page 1/3
fro: D. EdmundsoJl, Jr., Esq.
From: Lofton for Robert I'. Edler
!pbone: KS16) 802-4711 /Fax:
!Pages: 3 !Date:
IRe: Gayann Marie HeaD
Exam No. 20010071330
(202) 672:'5399
(816)
June 22, 2007
..
._._---
120 West 12th S!(eet
Suite 900
TIl;' f ... anal.
Intentlaa for V1e per$O(I or organization to
whom Jt I. aoar!lS8$d, \'01.1 /'lave nol
all page. Of lIIiS r'll .... 11 a HI 42' 5700 .. Invenor prot@ctlon. Marltet integrity.
Kansas C iIy, MO
541051930
3217
tel B 16 421 5700
fax 816421 5029
W'MY.nasd.com
Sent By: NASD;
/'
June 22, 2007
Ctrlifit-d Mail-Return Reeeipt
Requested slid First Cls!ilSMail
Gayann Marie Ilenn
.t
Legent Clearing .
9300 Underwood .t\vl:nue, Suite 400
Omah.t, NE 68' l4
Re: NASDMau.c.:r'No.20070071330
r ,egellt Clearing
Dcar Ms. Hcnn:
JUn-22-o,.: 21 PMj
NASD is investigating thisll111ttel' to determine whether violations of its rules or the federal securities
laws have occurred. In connection with ourinvesligation. and pursuant to NASD Procedural ftule
8210, we request that you appear at our offices located at 120 West 12111 Street, Suite 400, Kansas City,
I)n Fr'i(Jay, August 11, 20{l7 at. 10:00 lI.m., solmlt we may take your testimony under oath
on oral examination. .
Plense note the following:
Under Rule 8210, you are obligated to appear as. requested and .to answer OUT' lully,
accurately, and truthfully .. If after t.estifying you become aware that any of testimony was
incomplete or inaccurate, yeti lllu..'it contact us promptly to supplement or correct it. A failureon your
part. to satisfy these obligations equid expose you to NASD sanctions, including it pt:nnanenl bar from
the securities industry. .
You rony be accompanied and represented by counsel when We 1.akc your testimony.
NASD stat1" will consider asst:rtions of cummon Jaw testimonial privileges such as aLLorney-clit!l1l
privilege. Becau!>e NASDis rIot a governmental agency; however, the r.ifth. Amendment privilege
again":l !.Iclr-incrimination does not apply in its investigations and proceedings. Refusing to answer a
questiol\ based on a1l of that privilege constitutes a viulalion urNASD Proccound Rule. 8210
. and may expose you to NASD sanctions, including a p!!nmment bar from the securities induslry.
Your testimony will be tlftItSlCribcd by a courl reporter. NASD staff will control the record and the
repmter will not go off the record unless direcled \.0 do so by NASD !;tatl'. You or your lIHorney may
ask to go offlhc record, and the NASD employee taking your will detenlline whether or !lot
to grant the I'equeiit.
Page 213
lC:! Ule; 421
InvHfor proteaion. M.lrl::c-t integr ill'.
3218
110 Wf'<;t 17th Street. 1:100 SlI'i 4)1 502.9
KarlSaS City. MO MID!; www.nasd.(tlrn
Sent. By: NASD;
/
Mli. Gayann Marie HeM
Legent
June 22,2007
Page 2
8164215029;
JUn-22-o.:21PU;
The CQun nlpottcr win not the or your testimony to you withoutNI\Sn
authorization. It" )'01,1 WiRh to obtain the transcript, you or your attorney may seek sueh aulhorUatilJII
by sending a written request to the NASO employee who testimony. If your request is
grcsntcd, you may then purchase tbetraI1St.-ript from the court reporter. If your request UI denied.. you
Illay still review tho transcript at NASD'$ offices. NASD staff does not release copies of exhibits to
leslimony but they are available for reviewaf. NASD'jf omce$.
As a Malter of policy. NASl) conducts its investigations ona non-public bnS'is. Nevertheless, NASD
may provide access \0 its: investigative flies to othcr regulatory and law enforcement
autllorities, and, to litigants in civil actions. In addition, pursuant to the NASD Code of
Procedure, NASD is required lo produce documents and lranscr:ipls to respondents during discovery.
will not entertain requests for confidential treatmenl Oflhe record of your testimony or gjve you
notice of any subpoena or access request we receive that encompasscs it.

finally. this. request should not be construed as an indication that NASD or its slarr has determined
that any' viulaJ.ions of federal securities laws or NASD rules have occurred. Please call me at (816)
802-4741 if'you have any questions. .
Sincerely,.
Robc..-rt P. Edler
SPccia,llnvestigntor

ce: Vi. Facsimile Transmlsston - (202) 672-5399
and Fint Class Man
Il)scph D. Edmondson, Jr.,
Foley & Lardner. LLP .
3000 K Strcet, N.W., Suite 500
Washington, DC 20007-5143

Page 3/3
) .
, J
Sent By: NASDj
8164?15029;
I
rro: D. EdmundsoD, Jr., Esq.
From: Lofton tor Robert P. Edler
Phone: ,,816} 802-4711 lFax:
rages:' 3 Inate:

Jeffrey Normaa Simc
Exam No. %0070071330
.
(202) 672-5399 :
(816) 421 ... 519
J IIBC! 21, 2007
120 West 121h Street
900
Thia laX 1r...w.(iROiclly conMenIIaIll'Id if
100mded &atll/y fIlIlhe person or Ql'9llnlZIIIIOot to
it il lIddrilled. II JW h.ve ngt !1ICRIvlil
allIBQ.1 cUIII'1aJi please caP B1S 421 S71lO
Investnr protection. Marktrt integrity.
Kansas City, MO
64105-1930
322.0
Page 1/3
,te1B164:l15700
fax IIlb 4115029
www.nll$d.com
. ,
.F
Sent By: NASOj
8164215029j
JUn-22-011: 29PM;
Page 2/3
, June 22, 2007
,Certified Mllil- Return Ucceipt
Requestoo Dncl FintC1a85 Mail
Mr. Jeffrey Nonnan Sime
4203 S. 174111 Street . '
Om21h .. , NE 68135
ltc:' NASD Matter,No. 20070071330
Legent Clwring
Mr. Simo;
NASD is investigating this matter to determine whether violations of its rules or the federal
laws have: occurred. In cOllnectioQ with our investigation, and pursuant to NASD Procctlur.d Rule
8210. we Mluest that you appear at our offices located at 120 West 12th Strc.."Ct, Suite 400, Kamsas.
City; Mi.'\souri on nunday, AUlasi 16, lD07 at ,so tbal, we may take your te!;timony
under oath on clUtmination. '
, J'Jea. .. e notc Ihe following:
tInder Rule 8210; you arc ubligllied to appcur as and to answer our qucslions fully.
accura.tely, and truthfuJly. If' after 'teslifYing become II,wure that any uf your testitnony \Va"
incomplete or inaccurate, you contact us promptly to la'Upplemenl or COl'1'CCl it. A failure On your
part to satisfY these obligations could eXflollC youta NASD including a pormanent bar th.>n1 ,
the industry.
You may be accompanied and represented by counsel whtln we takoyourtestimony.
NASI) sLafl' will consider assertions of common law testimonial privileges such as aUOTOcy-cliem'
privilege. Because NASI> is not a governmental agc..-ncy, however, the Finh Aniendment privilege
. selt:'incriminatiorl docs not apply in ia investigations and proceedings. Refusing to nnswl:r a
quesJion based ori an assertion of thai privilege constitutes a violation ofNASD PrOCcdurul "Rule 3210
tlnd may eXpOse you to NASD sanctions, including a permanent bar from the securities industry. " '
Your teStimony will be tranllr..'Tibed by 'a oourt reporter. NASD starr will control lli.e recOrd and the
reporter, will not go off Lbe record unless directed to do so by NASD staff. Youoryour attorney may
ask to go off-the rccuri:l. and the NASI) empluyeetak,ing your testimony wiHdel.ermine whether or not
(0 grant d,c request.
InVutor pn;>tectlon. Mlu'l:E't intcllnly.
, 1111 alii 11215700
"nWcsl12rh 8llO , roil( R16 4,,/1 50'CI
I<Rn'-1S Cilv. MO 6410!) wNW.nilSd.( um
322.1
II
.r
sent By: NASDj
81642.15029 j JUn-22-01.1If: 20PM;
Mr. Jefth.:y Norman Sune;
T .egent Clearing
lune 22, 2007
Page 2
The court reporter ""'iII. not rclcliSc the tTllliscript of your testimonY to you without NASI)
auth(lrization. rr yuu wish to obtain the Imnscript. you or your attomey may seek. such authorization
. by sendlng a writtcn request 10 the NASD employee who look your testimony. If your request is
granted, you mny then purchase the transcript from the court reporter. If your rcquc.>i is denieu, you
may review the tnmscript al NASD's offices. NASI) starr does not release copies uf exhibits to
testimony but they arc available forreview al NASO's offices.
As a matter of policy, NASD conducts its investigations on a nCln-puhlic basis. Ncvcrtheless.NA$n
may sometimes provide access to its investigative Liles to oilier regulatory lmd law enforcement
a.uthorities, and, if subpoenaed. to litigants in civil actions. In addition. pursuant to the NASD Cod", of
Procedure. NASD is.requirctl to produce documents and transcripts to respondents during discovery.
We will not entertain requests ti)r confidential tnmtment of the record of your testi.nony or give ynu
notice of any subpoena or access we receive that encomp.1sses 1t.
... ... ...
Finally, this should not be construed as an indication that NASD or its stair determilll:d
that. any violations of federal securities laws or NASD rules have occurred. please call me at
&02-4741 if you have any questiom;.
Sincerely,
Robert P. Edler
Spl.:cial1nvestigaior
RPE:sdl
cc: VIa Jtacsimile - (202) 672-5399
and First Class Mail
Joseph D. Edrnondson, Jr., Esq.
foley & Lardner, J.LP
3000 K Stn.;cL, 500
Washington, DC 20007-5143
II
3222
Page 3/3
Sent
....
fro: D. Ed .... u ndsoll. Jr., Esq.
!From: Lofton (or Robert P. Edler
!phone: kS16) 802-47]1 !Fax:
Pages: 3 !nate:
-
iRe: .Jean Elizabeth Luther
Enm No. 20070071330
.,..;15029;
(202) 612-5399
(816) 411-4'19
June 22, 1001 .
... - ... -
120 West 12th
Suite 900
This Tax Ina ......... <:onndenlJal .. nd i.
SOlaly fO( 1118 pa<IIo)Il CII V'1llllWtlon 10
I'rT\Om ij i. lIddr&Ned. If 'fW. !lIVe no!
iii! page. of1l11a f .... pl.as .. 0,111 815 5i"OO. Investor protection. Market integrity.
Kansa5 Ctty, MO
641051930
3223
Page 1/3
te1S164215700
fax 816 421 5029
www.oasd.com
Sent
I
June 22, 2007
Certified Mail- RetuJ'll Receipt
Requested and First Class MaD
Ms. Jean Elizabeth Luther
T .cgenl Cit-wins
9300 Underwood i\ venue, Suite 400
Omaha,-NI1 68114
Re: NASI) Matter No_ 20070071330
. Legcnt Clearing
Dear Ms. Luther.
JUn-22-071: 19PMj . Page 2/3
NASD is this maLLer to detennine whether or its rulcs or the federal securities
laws have occurred. III t.:lIuncelkm with our invesligation, and pursuant to .NASI) ProccdurdJ Rule
8210, WI:: request that you appear at our otTices located at 120 West 12th Street, Suite 400, Kar\sas
City, Missouri on Wednesday, 15, Z007 at 10:00 lI.m., so that we may take yout testimuny
under oath on oral examination, .
PIe.!!:;e note the following:
Under Rule 821 0, yOt/are obligated to appear 8.0; requested and .to answer our questions fully,
accurately, and truthfully. If after testifying you become aware that any of your testimony was
or inaccurate, you mU1;L contact. uS promptly to supplemenf or correct il.A railurc un your
pan to satisfY these obligations could expose you to NASD sanctions, including a permanent bar from
the securities industty. .
You m:sy be accompanied and represented by counsel when we take your testimony .
. NASD staff will consldet assertions of common law testimonial privileges such liS attorney-client
. privilege. Because NASD is not a governmental agency, however. the Fillh Amendment privilege
agaitisl st.I[f-incriroination does not apply in investigations and proceedings. to answer a
question based on an assertion of that privilege constitutes a violation of NASD Procedural Rule 8210
and may ex.pose you to NASD sallctiorl:i, including a permanent bar from the sccurhit . 'S industry,
Your testimony will .be transcribed by a court NASD statl' will contro/the record and the
reporter will not go off the record unless directed to do so by NASD You Or your Illlorney may
to go off the record, and lhu NASI) employee tnJdng your tC!dimony will determine whether or not
to grant the request.
prntl!H;tion. Market integrity.
. 3224
'70 WFfS1 12th Street. HOO
Kansas Cilv. MO &4105
till H16 5700
816421 5029

Se,nt
r
Ms. Jean Elizabeth LULher
Legent
June 22. 2007
Page 2
816421.5029;
PagE' 3/3
The court rcpOrtl.'lr will nol release the transcript ot" your temmony to yOu without NASD
.authorization. If you wish to obrain transCript. you Dr your attorney may seek !luch authorization
by stmding u written reque.crt to the NASD employee whu took your testimony.. If your request is
cranted, you may then purchase the transcript from the court reporter. If your request is. denied, you
may still the transcript at NASJ)'s offices. NASD st;dTdoes not release eopies of exhibits to .
. testimony buttbey are a .... ailable ror n:vic..'W at NASD's offices. '
As a matter of policy. NASD conducts its investigations on a non-public basis.' Nevereless. NASD
. may sometimes access to its investigative files to OCher regulalOl}' and law enforcement
authorities. and, it" subpoenaed, to Jj'iganLs in civil aetions. In addition, pursuant to thQ NASD Codoof
Procedure, NASD is required to produce documents and b'anscripts to respondents during liiscovery: .
We will not. entertain requeSts for confidential treatment of the r, :lTd of your testimony or give you
. notice of any subpoena or access request we receive that it .

Finally. this should not be construed as an indication that NASD or its staff has detennined
that any.violations of federal securities laws or NASD rules have occurred. Plewsc: call me at (816)
.802-4741 'ifyou have any questions. .
Sincerely,

Robert II, e<l1cr
Speclallnvestisator
ce: Via. Facsimil,,'rralUmwion - (lOll 6Zk5399
and First gass Milii
Joseph D. Edmondson, Jr . Esq.
Foley & Lardn.or, U,p
3000 K Street,N. W., Suite SOO
Wasbington, DC 20007-5143
3225
..
spnt By: NASDj
. 8164215029;
..Jun-22-07"1: 17PMj Page 1/3
tra: D. 'Edmundson, Jr., 'Esq.
!From: LoftOD.tor Robert P. Edler
.. -
Phone: 801-4711 Fax:
.!pages: .3
. Date:
iRe: . David Robert Brant
. Exam .No. 10070071330
(202) 671-53"
(816) 421-4519
J0821,1007
120 West 12th Stmet
Suite 900
ThilIllX c:orRIanall .,.. ill
iItcniIed aalaty tw lilt PtI'lOl'l 01' arganballOn 10
..... m It IICkI .... B4. If you !lav .naI r_IYIICI
all pages at thl. fax plea .. call It I ..,.. 5100. Inyestor protectiQn. Marlee! lntogrilY.
Kans,., CIty. MO
6410S-1S130
3226
tel 816 421 5700
falt 816421502.9
www.nasd.com
sent By: NASDj
,
June 22, 2007
Certified Mail- Receipt
Requested and First Class Mail
Mr. Oavid Roherl Brant
Lcgetlt Clearing
9300 tJlIl.lcwuod Avenue, Suite 400
Oinaha, NE 68114
Re:. NASD Matter No. 20010011330
Lcgent Clearing
Dear Mr. Ikant;
8164215029j Jun-22-Q : 18PMj
NASD is investigating this matter to whether violations of its rules or the federal securities
Jaw:s have oecUlred. In connection with our and pursuant to NASD Procedura.1 Rule
.8210, we request that you appear at our offices located at 120 West 12th Strcl:t.. Suite 400, Kansas
City, Missouri On Friday,AnfllS( to, 2007 at 10:00 a.m., so that we may take your lestimony under
oath on oral examination.
Plea.')e note the folloWing:
Under Rule 8210, you are obligated to appear as requested lind to answer our questions fully.
ll(.:cunltel)" and truthfully. if after testifYing you become aware that any of your LesLimony was
incompltlle or inaccurate, you must contact us promptly to supplemeilt.or currect it. A tailure on your
part to satisfy these obligations could cXpOst= you to NASD sanctions, including. II pennanent bar from
lht: securities industry.
You may be accompanied and by counsel when we take your testimony.
NASD will consider assertions or common law lestimonial privileges such IlS
privilege. Bccau!!e NASD is not a governmental agency, however, the Fifth Amendllleni
agamst selfincrimination doel> not apply in its investigations and proceedings. Refusing to anSWer It
question based on an assertion of that privilege cOl1stitute.<; a violation ofNASD Procedural Rule 8210
and may expose you to NASI) sanctions, including it pennanenl bar from the securities industry.
Your testimony will be transcribed by a court reporter. NASD staff will control the: record llnd rhe
reporter will not go off the record unless direcl.ed to do so by NASD staff: You or your attorney may
:u:k to go oft'thc rCl:onl., and the NASD employee taking yuur testimony will determine whether or not
to grunt the rcquosl.
Page 2/3
tel S1f) 4J.l !i700
12.0 I Zlh Slr .... t. "llit!" 1;((.10 fax 816 4) 1 5020
protl!lction. Mark!'! Kansas C.tv. MO 6-1105 www.n;mi.com
3227
II
Sent By: NASDj
Mr. David Robert Dr-tnt.
l.egent Clearing
June 22, 2007 ,
Page 2

.. " .
Page 3/3
The court R.1'ortcr release the' trarllfCripl of your leslimonyto you without NASO
authorization. If you wish to obtain the tran!!cript, you or your allomey may seek such authori7..ation
by sending a written request to the NASD employee who took, your testimony. Ir your request is '
granted, you may then purchase the tnulst.-ript from the court reporter. If your request. is denied, you
may still review the transcript at NASD's uffices. NASD. staff nOl release copies of exhibits to
testimony b,UL they are availllbll: for review at NASO's offices. .
As a mal.t.er of policy, NASO its investigations on a non-puhlic basis. Nevertheless, NASD
may pI:Ovidc awcess to its investigative files 10 other regulatory and law enforcement
authoritios, and, if subpoenaed, to litigants in civil actions. tn addition, pursuant to the NAST> Code of
Procedure, NASO is required to produce documents and transcripts to respondents during disco'Vcry.
W 1# will not entertain requests for confidential trelttmeIJt of the record of your testimony' or give you
notice of any subpoena or access rCquest we receive that encompasses it. '
* *
Finally, ,this request should ,not be construed as an indicatioll that NASO or its staIr hIlS dcrtcrmillw
that any violations offederal securities laws or NASlJ,rules have occurred. PlcWre 'call me at (816)'
802-4741 if you have any questions. .
Sincerely,

-p.
RobQrt P. IJdIer '
Special Investigator
RPE;sdl
cc: ViII Fltalimile TransmissioD - (lOll 671-5399
and It'int Clas. Mail
Joseph D. Edlllond!lOn, Jr., Esq.
Foley & Lardner, ttl> '
3000 K Street, N. W., Suite SOO
Wushington, DC 20007-5143
I'
3228
Sent By: NASDj
r'


. Joseph D. EdmuDdso .. , Jr., Esq. .
,.
JUn-22-0711j:16PU; Page 1/3
(lOl) 67:1.5399
/From: . ishcrri LoftOD rot. Robert P. Edler
rhoae: KSl6) 80l-4711
_ ... , ..
Pages: J

Craig Marsball Black
,.
Exam No. 20070071331}

"ate;
.. -
(816) 411-4519
June %1, 1007
120 We$1 12th Slreet
Sula900
Irwestor Milrket integrity.
Kansas City. MO
64105-1930
3229
tel 816 1121 ;100
tax 816 411 5029
.www.nilscicom
sent By: NASDj
r
June 22, 2007
Certified Mail- Return lhccipt
Requested and Fint CIlIst MaO
Mr. Craig Marshall Black
Chief Compliance Offieer
LegentClcaring
9300 Und(lrW(lod.Avenue, Suite 400
Omaha. NE 68114
K.c: N ASO Matter No. 20070071330
Legcot Clearing
Dear Mr. Blnck:.
8 642.15029 j
NASJ) is investigating this matter to detenninc whether violations of ils rules the federal securitie. ..
hlWS have occurred. In connection with our investigatiun, ItIld pursuant to NASn Procedural Rule
8210, we request that you appear al (lUT located at 110 West 12th Street, Suite 400, Kansas
City. Missouri on Thursday, August 9, 2007 at 10;00 a.Itt., So 'hal we ma.y tako your testimollY under
oath on ordl examination .
. note the following:
Und<""T Rule 8210, you lire obHgated to. a.ppear as requested and to answer our questions fully,
accurately,. and truthfully. If after . testifying you become aware that myol your te:rutnony was
incomplete or inaccurate, you must conLacl us promptly \0 or correct it. . A failure 011 your
part to satisfy these obligations. could expose you to NASD sancliOllll, iricludinQ a permanent bar from
lhe lIecurili\:1$ industry. .' .
You may be accompanied and reprcsetllCd by counsel. when We hike your tesLimony.
Nt\sn slalT will conflider ll.'t<rcc:rtionR of com man privilegell $luch 8." attomcy-clicnt
priviJege. Because NASD is not a governmental agency. however, the Fifth Amendment privilege
against sl:lfinc.:rmliraatiuD dl!Us noL apply in Bnd proceedings. fu:fusing La 4UISWC't It
question based on an assertion ofthnt privilege constitutes a violation ofNASD Procedural Rule 8210
and may expose you to NASD sanctions, including a pennunent bar from the securities industry .
. Your testimony wiU be transcribed by a court reporter. 'NASD staffwiII eontroi the record and the
n:porlcr will nul gu olT Lllc 'record Utllcs!> dirtlctcl.l to du so by NASI) start, You orYlIur aUumcy may
ask to go off the and the NA8D employl."U taking your testimony will detenpine whether or not
to grant the request.
Page 2/3
fP.I 8164'15700
120 West "th Suite 800' lalIlllbl(215029
KansOls City. MO www.nolSd.com
...
)
sent By: NASDj
816421?029j
Jun- 22-0Y: 17PUj Page 3/.3
,.
Mr. Crdig Marshall Black
Chief Compliance Officer
Legcnt Clearing
June 22, 2007
Page 2
The court reporter will not releaso the transcript of, your testimony. to you Without NASD
authori7.ation. If you wish to obtain the ,transcript. you or your attorney maYRCck !lucb authorization
by sending a written request to the, NASD employee who I.uok your testimony. rr y()ur request is
grnnted, you may thCh purChase the transcript from the court l'epCJrl.l:r. If your request Is denied, you
may :lull n..'View the transcript at NASO's offices. NASD 918ft" does not releaSe copies of exhibits to
testimony but they arc available for review at NASD's offices.
As a mlliWr of poJicy. NASD conducts investigations on a non-public basis. NASl.)
, 'may aomcL;mcs provide access to ita investigative tiles to u,lher regulatory and law enforcement '
authorities, and. ifsubpoenaed, to litigants In civil actions. In addition, pursuant to the NASD Code of
Procedure, NASP is required to produce documents and transcripts to respondents during discovery.
We will not entertain requests for confidential treatment of the recQrd of your testimony (lr give you
notice or any subpoena or aoCOSlf Tcquest we receive tJial. encompasses it:

_ '.' ," Finally .. 1.his request should n01- ,be construed as anindiea'\.ion that or il.lh!.-t:aif has determined
that any of federnlseCuritic$ Ia.ws. or NASO rules have occurred. PIe"'$(: clill me: al (816)
8024741 if you have: IUly questions.
Sincerely,
f? $;.4?,
Robert P. Edler . , 7?
Speciallllvestigator
RPE:sdl
c;c: Via Facsimile TrllDsmission - (201) 61l-!399
and [irllC Ous Mail
'Joseph n. Jr .. '&q.
'Foley &'l.ardner, LLP
3000 K Street, N.W., SuiteSOO
Washington. DC 200075143 :
3,23.1
)' 1 '
,

FOLEY & LARDNER LLP
VIA HAND DELIVERY'
Mr. Jeffrey Dean
Special Investigator
Department of Enforcement
NASD
Chicago District Office
SS West Monroe Street, Suite 2700,
Chicago,IL 60603-5052
June 20, 2007
Re: Legent Clearing LLC (NASD No.2006 0068675)
, Dear J,effrey: ,
ATTORNEYS AT LAW
WASHINGTON HARBOUR
, 3000 K N.W., SUITE 500
WASHINGTON, D.C. 200075143
202.672.5300 TEL
202.672.5399 FAX
www.foley.com
WRITER'S DIRECT, LINE
202.672.5354
jedmondson@foley.com EMAil
CliENT/MAnER NUMBER
053352'()1l0
On behalf of our client" Legent Clearing LLC C"Legent" or the "firm''), we are
providing a final response to the Staff's letter request, dated April 18, 2007, as follows. The
enclosed documents have been labeledLC 001285 -'001353. '
Request No. 10
Enclosed CLC 001285- 001353). As 'we have discussed, Legent has conducted a ,
reasonable, good-faith search of recordS maintained by the Compliance Department for documents
that memorialize the actions taken at the referenced meetings. To the extent such documents exist
and were found, they have been produced. Pursuantto o:ur discussions, Legent has not searched for ' '
notes of individUals or other documents that individuals may have regarding the meetings.
, Request No. 14
Legent dOes not have in its possession AML Watch List Reports for the time period'
of March through May 2004. Legent has determined that in May 2004 it asked Beta Systems to add
the report as part of the battery of reports that Legent received from Beta. Thus, to the best of
Legent's knowledge and information, the first report was received in June 2004 Cas has been
provided to .the Staff). Legent has not been able to locate contemporaneous documentation' of the
request Legent made to Beta. ' ' , '
Further, in response to your request knowhow Legent decided to begin using the
report, Legent believes that its former Compliance Officer, Brian Varvel, attended a meeting at Beta'
in August 2003 during which the development of an AML watch issues were discussed, but the
report was not turned on until after Ms. Henn bC!came Legent's Compliance Officer and decided that
the report being generated by Beta would be useful. ,
BOSTON
, BRUSSELS'
CHICAGO
DETROIT
JACKSONVILLE
LOS ANGELES
'MADISON
MILWAUKEE
NEW YORK
ORLANDO
SACRAMENTO
SAN DIEGO
SAN DIEGO/DEL MAR
SAN FRANCISCO
SILICON VALLEY
3232
TALLAHASSEE
, TAMPA
TOKYO
, WASHINGTON. D.C.
WASH_1883040.1
,
: FOLEY'
FOLEY l LARDNER LLP
Mr. Jeffrey Dean
June 20, 2007
, Page 2
Request No. 16.
\ The documents, produced in response to Items 1-6 and 13 accompanying our letter
of May' 4, 2007 were collected under the direction of Craig Black and the balance of the documents
were collected byar under the direction of Ms. Gayann Henn.
*
While we recognize that the NASD does not itself afford any special confidential
treatment to documents submitted by members or associatc;d We also recognize that in
certain instances the NASD Staff may deem it necessary' to provide copies of such to the
SEC or other agencies. In that event, we request that the S.ta1provide such agency with a copy of
this letter, by which we request that the documents submitted herewith, and any copies thereof, be
afforded confidential treatment by such agency pursuant to 17 200.83 and/or the Freedom
of Information Act ("FOIA"), 5U.S.C. 552. Because the enclosures constitute an investigatory
record obtained by the agency, it is su1;lject to the exemption from mandatory disclosure under
Exemption 7(A).ofthe Freedom of Inform ation, Act, 5 U.S.C. 552(b)(7)(A) (1976). See. e.g., '
National Labor Relations Board v. Robbins Tire & Rubber Co., 437 U.S. 214 (1978); Chilivis v.
Securities & Exchange Commissio'n, 673 F.2d 1205 (11
th
Cir. 1982).' In addition, we believe iliilt
Exemptions 4, 7(B) and 7(C), are also.applicable, as well as theprotectioDs available under the
Privacy Act of 1974, 5 U .S.C. 552a. '
, Accordingly, we expect that the originals and all copies 'of the enclosures wili 1;>ekept
in a non-public fIle by such agency and that access by any third party not a member of the agency or'
its staff will be denied. Should the agency receive any request which would encompass this letter
and/or the enclosures, either pursuant to the Freedom of Information Act or otherwiSe, we expect
that we will be given an opportunity to object to such,disclosure. Furthermore,should the agency be
inclined to disclose this letter andlor the enclosures to any third party, it expectation that, in
accordance with normal agency practice, we will be given '4:n business days' advance notice of any ,
such decision to enable our client to pursue any remedies that may be applicable. See, e.g., Chrysler
Corp. v. Brown. 441 U.S. 281 (1979); In such event, we request that you telephone the undersigned
rather than rely upon the United States mail for such notice.
Further, to the extent that the materials are provided to the SEC, we object to the '
disclosure of the enCiosurespursua,nt to the "Routine Uses of Information" set forth in the document
captioned "SupplementaJ. Information for Persons'Requested to Supply Information Voluntarily or
Directed to Supply Information Pursuant to a Commission Subpoena." In addition, we request that _
this letter and the enclosures, and all copies thereof, be returned 'to the undersigned by the SEC at the
conclu.sionofthe inquiry. '
323.3
: FOLEY
FOLEY. LARDNER LLP
Mr. Jeffrey Dean
June 20, 2007
Page 3
rl.
Please do not hesitate to contact me at (202) 672-5354 if you have any questions or
need additional information. . .
'JDED/vdta
Enclosures
cc: . Mr. C ~ a i g Black (w/o encls.)
\
\
~ . cerely, _
.! (' (ll "- ,;1/ /), , I)
/.()(pll k,' . cd I1t/lfu..A I'jlJrI,_'
oseph D. Edmondson, Jr. ft:(lC!
3234