Products / contracts principal suspended and fined for allegedly engaging in an outside business activity without authorization
FINRA Rule 2010
FINRA Rule 3270
Concorde Investment Services censured and fined for allegedly failing to reasonably supervise investment recommendations made to customers
The firm ailed to reasonably supervise recommendations to purchase limited partnership interests that were to six customers. The customers had conservative or moderate risk tolerances, but the investments recommended and sold were highly speculative and involved a high degree of risk.
The firm failed to reasonably respond to red flags and was making unsuitable recommendations. Despite receiving and reviewing the suitability paperwork no further inquiries were performed by the firm.
A partial restitution of $20,382.39 has been ordered.
FINRA Rule 2010
FINRA Rule 3110
Products representative suspended and fined for allegedly falsely certifying that he had personally completed the continuing education required to hold an insurance license
Another person had completed 15 hours of insurance continuing education on his behalf.
FINRA Rule 2010
Former products representative barred for allegedly refusing to appear for on-the-record testimony
FINRA Rule 2010
FINRA Rule 8210
XP Investments US censured and fined for alleged wide-ranging compliance failures
The firm acted as a placement agent for three private offerings for which it did not conduct reasonable due diligence, but recommended to its customers. The real estate properties underlying the three offerings were foreclosed and the company in question filed for bankruptcy.
Non-bona fide trading was not meaningfully addressed by the firm’s supervisory systems or procedures. The firm did not have any tools in place to identify such trading and its WSPs provided no guidance on how trading activity should be reviewed in connection with it. As a result of these deficiencies, trading activity by the firm’s income trading desk was not supervised for potential non-bona fide trading.
The firm provided “retail customers with confirmations for approximately 7,000 bond transactions executed on a riskless principal basis”, which inaccurately stated that the firm acted in an agent capacity.
Finally the firm reported inaccurate information to TRACE and failed to put in place a supervisory system that was reasonably designed to achieve compliance with the firm’s TRACE reporting obligations.
A partial restitutionary payment of $575,000 has been ordered and the firm has agreed to the imposition of an undertaking requiring it to certify in writing the remediation of the issues identified.
FINRA Rule 2010
FINRA Rule 2111
FINRA Rule 2111.05
FINRA Rule 2232
FINRA Rule 3110
FINRA Rule 6730
SEA 1934 Rule 10b-10
Commerce Brokerage Services censured and fined for allegedly failing to comply with FINRA’s Code of Arbitration Procedure
In one case the firm sought temporary and permanent injunctive relief and damages, but failed to file a statement of claim with FINRA Dispute Resolution as required.
In a second case the firm filed suit in a court and filed a statement of claim with FINRA Dispute Resolution three months later. Because the claims arose out of the business activities of a FINRA member and former associated persons they needed to be arbitrated under the FINRA Code of Arbitration Procedure.
FINRA Code of Arbitration Procedure for Industry Disputes
FINRA Regulatory Notice 16-25
FINRA Rule 2010
FINRA Rule 13200
FINRA IM-13000
Products representative suspended and fined for allegedly participating in private transactions without prior authorization
FINRA Rule 2010
FINRA Rule 3280
Securities representative suspended and fined for allegedly recommending a trading strategy to customers without having a reasonable basis to do so
Another of the firm’s representatives developed and implemented a trading strategy designed to generate positive returns when volatility declined by investing primarily in an inverse and volatility linked exchange-traded note (ETN). The ETN was “high-risk, complex, and designed to manage daily trading risk.”
The representative did not conduct his own due diligence before recommending the strategy to 58 of his customers. And he did not fully understand either the strategy or its risk/reward profile when making the recommendation.
FINRA Rule 2010
FINRA Rule 2111
FINRA Regulatory Notice 09-31
FINRA Regulatory Notice 17-32
Securities representative suspended and fined for allegedly recommending a trading strategy to customers without having a reasonable basis to do so
Another of the firm’s representatives developed and implemented a trading strategy designed to generate positive returns when volatility declined by investing primarily in an inverse and volatility linked exchange-traded note (ETN). The ETN was “high-risk, complex, and designed to managed daily trading risk.”
The representative did not conduct his own due diligence before recommending the strategy to seven of his customers. And he did not fully understand either the strategy or its risk/reward profile when making the recommendation.
FINRA Rule 2010
FINRA Rule 2111
FINRA Regulatory Notice 09-31
FINRA Regulatory Notice 17-32
Smith, Brown & Groover censured and its President (securities principal) suspended and fined for allegedly recommending a strategy to customers without having a reasonable basis to do so
The securities principal developed and executed a trading strategy designed to generate positive returns when volatility declined by investing primarily in an inverse and volatility linked exchange-traded note (ETN). The ETN was “high-risk, complex, and designed to managed daily trading risk.”
Despite developing and implementing the strategy the securities principal “did not fully understand the ETN, including its basic features, such as how the issuer maintained its inverse exposure to the underlying volatility index or that the ETN was designed to achieve its stated investment objective on a daily basis.”
The firm ‘conducted flawed testing of the trading strategy that relied on incomplete data and that over-estimated potential returns. This led to a mistaken understanding of the risk/reward profile of the strategy.
The strategy was recommended to more than 350 of the firm’s retail customers, 260 of whom were direct customers of the securities principal.
In addition the firm failed to establish and maintain a system reasonably designed to ensure compliance with its suitability obligations. The firm:
- had no policy or procedure for conducting a reasonable-basis analysis for a high-risk ETN product;
- had no procedure to evaluate whether customers’ concentration in the strategy created a risk of loss inconsistent with their investment profile;
- did not document a customer concentration limit; and
- did not reasonably train its registered representatives regarding the trading strategy or the underlying ETN.
A partial restitution of $2m has also been ordered.
FINRA Rule 2010
FINRA Rule 2111
FINRA Rule 3010
FINRA Rule 3110
FINRA Regulatory Notice 09-31
FINRA Regulatory Notice 17-32
Securities representative suspended and fined for allegedly mismarking electronic order tickets
FINRA Rule 2010
FINRA Rule 4511
Osaic Services censured and fined for alleged compliance failings connected with excessive, unsuitable and unauthorized trading
The firm failed to establish and maintain a system reasonably designed to supervise for excessive and unsuitable trading in options.
The system in place flagged option transactions, which should have been reviewed by the firm’s registered options principals. However, the system permitted other registered representatives to override the alerts the system generated and to override the trading restrictions in place on the system.
The firm did not have in place supervisory procedures that would ensure compliance with the firm’s obligations to supervise for excessive and unsuitable trading. Contact with a client to confirm their understanding of trades was “advised”, but there was no guidance on when this step or a decision to modify or restrict future transactions by the client should be taken.
The firm failed to reasonably respond to red flags that one of its brokers was engaging in a pattern of unsuitable and excessive trading in customer accounts.
And finally the firm failed to reasonably supervise for unauthorized trades in the account of a deceased customer. Although the firm was aware of the customer’s death in February, 21 trades were effected in the account after this.
FINRA Rule 2010
FINRA Rule 3110
FINRA Rule 3260
Spartan Capital Securities censured and fined for allegedly failing to respond to FINRA requests in a timely manner
The firm did not respond to three FINRA information and documentation requests until after FINRA issued four follow-up requests and pursued three expedited proceedings to compel compliance.
In addition the firm also failed to put in place a system reasonably designed to ensure compliance with the requirements to respond to FINRA requests for information in a timely fashion. The firm’s compliance department “was understaffed and did not have adequate training or guidance” on how to handle FINRA requests.
No reasonable means of recording or tracking requests existed at the firm and the firm did not have a reasonable way to identify, retrieve or submit the documentation that FINRA requested.
As part of the settlement the firm has consented to an undertaking requiring it to retain an independent consultant to address the issues identified.
FINRA Rule 2010
FINRA Rule 8210
Former securities representative suspended and fined for allegedly participating in private securities transactions without authorization by his firm
FINRA Rule 2010
FINRA Rule 3280
BBVA Securities censured and fined for alleged supervisory failings connected to deferred variable annuity exchanges
The firm failed to establish and maintain a supervisory system reasonably designed to monitor rates of deferred variable annuity exchanges.
Instead the firm relied on transaction-by-transaction approval by supervisors, coupled with period reports on the activity of representatives. And these reports included information on single month transactions and did not include rates of exchange.
FINRA Rule 2010
FINRA Rule 2330
FINRA Rule 3110
Securities Principals charged with allegedly failing to provide information and documents requested
The principals, one of whom is the CEO and the other a CAO (Chief Administrative Officer) of the firm in question (see Spartan Capital Securities above) also failed to put in place a supervisory system reasonably designed to comply with rules connected to FINRA requests for information.
FINRA Rule 2010
FINRA Rule 3280
Registered representative suspended and fined for allegedly falsifying customer signatures
Customer signatures were added or appended to documents with their permission. None of the customers complained.
FINRA Rule 2010
FINRA Rule 4511
| Unless otherwise noted all respondents accepted and consented to FINRA’s findings without admitting or denying them. |
