FINRA publishes a monthly review of disciplinary actions taken against both firms and individuals. These disciplinary actions are useful tools to look for trends in violations and other sanctions. These trends can assist you in identifying weak areas in your firm’s compliance programs or surveillance. Below is a list of a few key actions from last month.
A Firm was censured and fined $250,000 for a number of violations related to insufficient policies and procedures. Their procedures did not reasonably avoid displaying locking or crossing quotations in over-the-counter (OTC) equity securities. Specific technology limitations caused a number of routing and execution errors. Coding errors also caused inaccurate reporting for last sale reports of transactions in National Market System (NMS) equity securities to the FINRA/NASDAQ Trade Reporting Facility (FNTRF). Finally, the Firm did not promptly report and supervise execution in transactions in Trade Reporting and Compliance Engine (TRACE) eligible securities.
A Firm was censured and fined $5,000 for failures related to Rule 3120 and 3130 annual certifications. Specifically, the Firm failed to conduct supervisory testing and verification or prepare an annual report documenting the results. The last certification completed by the CEO was completed 9 years ago. That certification was deficient because the Firm did not prepare an annual supervisory report for review.
A Firm was censured and fined $90,000 for Order Audit Trail System (OATS) related violations including products related to OATS compliance in trade reporting and market-making activity. Specifically, the Firm identified a software error that resulted in improperly formatted information that did not include a Not Held special handling code for an order that originated with a foreign affiliate of the Firm. The findings also stated that the Firm failed to provide all the necessary information required to comply with Rule 606 of Regulation NMS. The Firm failed to report the material aspects of its relationship with certain venues to which it routed non-directed orders for execution, including any arrangements for payment for order flow and any profit-sharing relationship.
Documentation Violation Trends
An individual was barred from membership after backdating TRACE report cards, providing them to the Firm and the Firm subsequently providing them to FINRA to note documentation of supervisory review. FINRA noted inconsistencies between the approval dates and the software usage logs.
A representative was fined and suspended for making false representations on their Firm’s annual compliance questionnaires. Specifically, the individual exercised discretionary authority over several accounts without proper documentation or approval by the Firm. The individual did not disclose these relationships causing the Firm’s order memorandum to be inaccurate.
A representative was fined and suspended for borrowing money from a client without prior Firm approval. When the client sent an email demanding repayment, the individual asked the client to state that the loan was from his brother and not the representative. When the Firm discovered this during an email review, the representative made false statements to conceal the loan.
Unsuitable Transaction Trends
A representative was fined and suspended for engaging in unsuitable transactions in a client’s IRA account. The representative actively traded risky, microcap stocks in the customer’s account, even though the account value had declined by more than 60% since its inception and the customer was facing a serious illness. This resulted in large losses in an account that the client relied on to help the family business.
A representative was fined and suspended for recommending several non-public offerings without having a reasonable basis to believe those transactions were suitable. Additionally, the individual had discretionary trading authority over the account without the written consent of the customer or the Firm.
Disclosure Violation Trends
A representative was fined and suspended for failure to disclose over 1.7 million in federal and state tax liens. A portion of the liens was reported but noted as satisfied when they were not. The representative also makes false representations on his Firm’s annual compliance forms related to his lien history.
A representative was barred from membership after failing to disclose a felony on his Form U4. The Firm was made aware of the disclosure after the individual was denied an agent reappointment due to a criminal matter. Unfortunately, the representative admitted to a criminal charge but failed to disclose the extent of the charge as a felony.
A representative was fined and suspended for failure to disclosure three outside business activities. The individual had performed accounting and trustee services and received compensation for these activities.
The complete list can be found in Disciplinary and Other FINRA Actions in April 2020.
To learn more about trends from FINRA actions, check out our other posts about recent disciplinary actions.
Contact us today. Our team of expert consultants can help your firm build a compliance program to avoid disciplinary actions and fines.