Merrill Mutual Fund Enforcement Lessons Learned

Merrill Mutual Fund Enforcement Lessons Learned

FINRA (Financial Industry Regulatory Authority) announced on June 2, 2022 that it ordered Merrill Lynch, Pierce, Fenner & Smith, Inc., to pay 15.2 million in restitution and interest to thousands of customers who purchased Class C mutual fund shares when Class A shares were available at a substantially lower cost. FINRA news releases 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 summary of the Merrill order, as well as key takeaways. Click here for the corresponding news Read more about Merrill Mutual Fund Enforcement Lessons Learned[…]

Crowdfunding Enforcement Lessons Learned

Crowdfunding Enforcement Lessons Learned

FINRA (Financial Industry Regulatory Authority) announced on May 4, 2022, that it fined two FINRA registered funding portals, a combined $1.75 million for failing to comply with securities laws and rules designed to protect investors in the crowdfunding space. These news releases are useful tools to look for trends in enforcement, violations, and other sanctions. These trends can assist you in identifying weak areas in your Firm’s compliance programs or surveillance. Below is a summary of the Wefunder and StartEngine matters, as well as key takeaways. Click here for the corresponding news release. Summary of Findings from Wefunder Enforcement: From Read more about Crowdfunding Enforcement Lessons Learned[…]

Customer Complaints (FINRA Rule 4513)

Customer Complaints (FINRA Rule 4513)

FINRA Rule 4513 defines a “customer complaint” as any grievance by a customer or any person authorized to act on behalf of the customer involving the activities of the member or a person associated with the member in connection with the solicitation or execution of any transaction or the disposition of securities or funds of that customer. Customer complaints that are made in person or over the phone are not within the scope of this rule, however, it is still prudent for members to address these complaints so that they do not escalate further. If a complaint is resolved to Read more about Customer Complaints (FINRA Rule 4513)[…]

Spinning

Spinning

Spinning is the practice of allocating highly sought-after IPO shares, also known as hot stock, to individuals who are in a position to direct securities business to the firm. This is why portfolio managers are categorized as restricted persons. These individuals are in a position to direct business to a firm and may be willing to do so based on the size of their allocation. Spinning Prohibitions Rule 5131 prohibits the allocation of new issue shares to any account in which an executive officer or director of a public company or covered non-public company, or a person materially supported by Read more about Spinning[…]

Annual Compliance Meeting (ACM)

Annual Compliance Meeting (ACM)

FINRA Rule 3110(a)(7) requires all registered representatives and registered principals to participate, at least once each year, in an interview or meeting at which compliance matters relevant to their particular activities are discussed. Annual Compliance Meetings (ACM) give registered persons the opportunity to regularly discuss compliance issues and assists the firm in ensuring that registered persons remain current on applicable regulatory developments or changes in firm policies. Hosting an Annual Compliance Meeting These meetings can be held individually or with a group and typically take place at a central location or at the representative’s or principal’s place of business. These Read more about Annual Compliance Meeting (ACM)[…]

Gifts and Gratuities

Gifts and Gratuities

Advisory representatives are prohibited from accepting anything of value that might influence their investment decisions or serve to reward them in connection with their investment advisory activities. Additionally, advisory representatives are expected to refrain from knowingly conducting advisory business with any individuals or entities that use gifts, gratuities, or other items of value to bribe or influence others.

The provision and receipt of gifts and business entertainment by investment advisers and their employees are subject to pervasive regulation. Firms are to supervise and document all gifts and gratuities given to or received from any clients and prospective clients. The rule protects against the improprieties that may arise when firms or their associated persons gives gifts or gratuities. Firms must take any action to identify or examine the nature, frequency, extent and dollar amount to determine if such gifts and/or gratuities are in compliance with the firm’s policies. RIA’s are to adopt a policy governing professional conduct and conflicts of interest. Such policy is to provide that all associated persons have high standards of performance, integrity, productivity and professionalism. The firm should monitor for any and all conflicts of interest that could result, including instances of preferential treatment over other clients.

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