Firm Expelled and Fined $100K
A firm from Carrollton, Texas was expelled from FINRA membership and fined $100,000, while it’s CCO was fined $25,000, barred from association with any FINRA member in any principal or supervisory capacity, and suspended from association with any FINRA member in any capacity for three months. The firm’s CEO was additionally fined $50,000, barred from association with any FINRA member in any principal or supervisory capacity, and suspended from association with any FINRA member in any capacity for six months.
The National Adjudicatory Council (NAC) affirmed the findings and modified the sanctions following appeal of an Office of Hearing Officers (OHO) decision. The sanctions were based on findings that the firm, its chief compliance officer (CCO), and its president, failed to reasonably supervise the private securities transaction of a firm registered representative and failed to record the transactions on the firm’s books and records. The findings stated that the representative engaged in private securities transactions and received selling compensation (both transaction-based compensation and profit participation interests).
Nevertheless, the firm, CEO and CCO failed to record the representative’s private securities transactions on the firm’s books and records, and failed to supervise the transactions as if they were executed though the firm. The findings also stated that the firm failed to establish, maintain, and enforce written supervisory systems and procedures that were reasonably designed to ensure compliance with NASD Rule 3040.
The firm, CEO, CCO failed to conduct a reasonable inquiry into the representative’s registered investment adviser (RIA) and hedge fund businesses, and make a determination, documented in writing, as to whether such businesses constituted an outside business activity or outside securities activity.
Further, the firm, CEO and CCO failed to enforce the firm’s procedures by failing to ensure that all the requirements of Rule 3040 were met, and to request copies of duplicate statements from the executing broker-dealer with respect to the representative’s RIA and hedge fund activities.
To read FINRA’s complete April disciplinary actions notice, click here.