FINRA has suspended and fined a former registered representative after uncovering violations tied to both discretionary trading and the use of personal devices for business communications.

According to the settlement, the individual placed more than 250 discretionary trades in client accounts without written authorization from the customers or approval from the firm. While the clients had discussed general trading strategies, they were not consulted on the specific trades made — a clear violation of FINRA Rule 3260(b) and Rule 2010.

Off-Channel Communication Violations

In addition, the representative used a personal cell phone to exchange securities-related text messages with 27 customers and other firm employees over a two-year period. These communications included investment recommendations and discussions about account transfers.

Because the messages were not sent through a firm-approved system, they were neither captured nor preserved as required, causing the firm to maintain incomplete books and records in violation of Section 17(a) of the Exchange Act, Rule 17a-4(b)(4), and FINRA Rule 4511. The sanctions include a 45-day suspension and a $10,000 fine.

Compliance Lessons for Firms

This case is a reminder of how unauthorized trading and off-channel communication remain top areas of regulatory scrutiny. To avoid similar risks, compliance teams should:

  • Reinforce discretionary trading rules by requiring written client authorization and firm approval before allowing representatives to exercise discretion.
  • Tighten supervision of communications by ensuring all business-related messaging occurs on approved, monitored platforms.
  • Train and test staff awareness around the risks of personal device use and unapproved channels for securities-related discussions.
  • Review and update WSPs regularly to ensure they address evolving risks like encrypted apps and emerging communication platforms.

For compliance professionals, this case illustrates the ongoing need for vigilant supervision, clear communication policies, and consistent enforcement to protect both clients and firms.