According to FINRA’s monthly disciplinary actions, a firm member from Newark, New Jersey was assessed a deferred fine of $5,000 and suspended from association with any FINRA member in any principal capacity for four months. FINRA’s action also required the firm member to attend and satisfactorily complete 40 hours of continuing education concerning supervisory responsibilities.

Without admitting or denying the findings, the securities principal consented to the sanctions and to the entry of findings that he failed to reasonably supervise two registered representatives of his member firm who excessively traded customer accounts and a third representative who falsified the firm’s books and records. The findings stated that he did not reasonably review orders or conduct periodic reviews to identify potentially unsuitable recommendations or excessive trading.

Although the principal signed off on weekly trade reviews, he did not focus on red flags of potentially unsuitable or excessive trading, such as frequent trading, large trades placed on margin, in-and out trading and high commission charges. As a result, he did not reasonably supervise the two representatives who excessively traded customers’ accounts, ultimately charging those customers more than $300,000 in commissions and fees in less than six months.

In addition, the principal in question did not investigate red flags that the two representatives were recommending securities transactions in those accounts despite not being registered in the customers’ home states. The findings also show that he knew that the third representative, who was listed in the firm’s books and records as the representative of record for the accounts in question, was only 20 years old and had virtually no experience as a representative.

It was also found that he knew that the two representatives, who had introduced the customers to the firm, had been unable to obtain registrations in the customers’ home states, and that the third representative became their representative of record shortly thereafter. According to FINRA, the principal did not take reasonable steps to investigate these red flags, such as contacting the customers. Had he done so, he would have learned that the two representatives – and not the third representative – were making securities recommendations to the customers in question.

To read FINRA’s complete disciplinary actions notice, click here.