The Monthly Disciplinary and Other FINRA Actions report from January may provide a glimpse into the conduct by Firms and individuals that result in disciplinary proceedings. For Firms, a failure to evolve a program can be costly. For individuals, failure to disclose despite Firm-acknowledged requests may result in FINRA sanctions.

Firm Trends and Lessons Learned

C.L. King & Associates, Inc. and Gregg Alan Miller started the journey with the firm fined and Mr. Miller sanctioned. The summary of the case was long, but the takeaways were clear. The Firm must have appropriate principals with the requisite experience to sell products. This failure leads to the customer being the expert (which FINRA frowns upon for risk purposes) or the customer left in a vulnerable position against potential bad actors of the Firm. Written Supervisory Procedures designed for the business of the Firm is a FINRA requirement. The more unique or elevated risk of the product, the more FINRA will scrutinize the Firm’s ability to abide by state and federal securities laws. For products that are unique or high risk, the Firm needs to have a risk-based AML program. Other Firm fines related to specific mutual fund suitability procedures for high-risk mutual funds.

Last month, Firms also received fines for delayed orders and failure to properly report OATS. Finally, making changes to risk profiles and financial information (i.e. forgery) without the consent of the customer to sell a product is a cautionary tale of one firm in January.

Individual Trends and Lessons Learned

Four trends stuck out during the review of individual sanctions which made up much of the overall report.

Failure to Disclose

This area had several examples, but private securities transactions made the top of the list. Numerous representatives completed the required annual compliance questionnaires or other documents to disclose, did not properly disclose, and received compensation for these activities. Fines ranged in the dollar amounts of $5k to $50k and above, as well as suspensions of 3 months or longer.

Unauthorized Trading

Representatives were sanctioned for placing trades without the knowledge and consent of the client.

Senior Investors

Senior investors were often coupled with unauthorized trading in a senior’s account. This included the trading of products that were unsuitable to the investor, as well as unauthorized money movements.

Falsification of Documents

Several cases involved altered documents or inserted signatures to process requests. Some were done without permission; however, the findings also show that certain representatives received sanctions despite their best intentions to accommodate the client representatives (even with their permission).

Please contact us to discuss how our expert team works with broker-dealers to help keep your Firm off the next FINRA monthly disciplinary actions report by building a solid compliance program.