Bad Brokers

According to FINRA, BGC Financial, L.P. was censured and fined $175,000 for failing to report to Trade Reporting and Compliance Engine (TRACE) the time of execution in the finest increment of time captured by the firm's system in over 3.5 million U.S. Treasury Securities transactions.

The firm ut...

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According to FINRA, BGC Financial, L.P. was censured and fined $175,000 for failing to report to Trade Reporting and Compliance Engine (TRACE) the time of execution in the finest increment of time captured by the firm's system in over 3.5 million U.S. Treasury Securities transactions.

The firm utilized a system for the electronic execution of U.S. Treasury transactions that captured execution times in milliseconds. However, the firm reported the execution times to TRACE in seconds rather than milliseconds, representing 100 percent of the firm's reported trades in U.S. Treasury Securities.

While this may seem like a technical issue, accurate trade reporting down to the millisecond is critically important for market surveillance and transparency. In today's high-frequency trading environment, thousands of transactions can occur within a single second. When firms report execution times only in seconds rather than milliseconds, it becomes much more difficult for regulators to reconstruct the sequence of trades and detect potential market manipulation or other improper trading practices.

The TRACE reporting system is designed to provide transparency in the over-the-counter corporate and government bond markets. Accurate time stamps are essential for this transparency, allowing regulators to monitor market activity, detect anomalies, and investigate potential violations. When firms fail to report execution times with the precision their systems capture, they undermine the effectiveness of this regulatory oversight.

This case serves as a reminder that firms must report trade information with the level of detail their systems are capable of capturing. Even seemingly minor reporting discrepancies can have significant implications for market oversight. Investors benefit from accurate trade reporting because it helps ensure fair and orderly markets where manipulation and other abuses can be detected and addressed.

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According to FINRA, Paulson Investment Company LLC was censured, fined $150,000, and ordered to pay $185,215.35, plus interest, in restitution to customers for failing to reasonably supervise unsuitable recommendations to purchase variable interest rate structured products (VRSPs).

The firm's rep...

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According to FINRA, Paulson Investment Company LLC was censured, fined $150,000, and ordered to pay $185,215.35, plus interest, in restitution to customers for failing to reasonably supervise unsuitable recommendations to purchase variable interest rate structured products (VRSPs).

The firm's representatives recommended that customers with either low or moderate risk tolerances, or with a growth investment objective, purchase VRSPs that were unsuitable for the customers in light of the substantial risks of VRSPs, including the potential for long periods of earning potentially little or zero interest and loss of principal. The firm considered VRSPs to be non-conventional investments, and its written supervisory procedures restricted the sale of VRSPs to customers with aggressive or speculative investment objectives and risk tolerances higher than moderate. The procedures also required customers who purchased VRSPs to complete a disclosure form attesting that they had met those requirements.

However, the firm failed to enforce these requirements and did not obtain disclosure forms from the customers. The firm also did not take any steps to determine that the securities were suitable for the customers. Collectively, the customers paid more than $58,000 in sales charges for these unsuitable purchases, and half of the customers suffered total realized losses exceeding $50,000, even after accounting for income earned while they held the VRSPs.

Additionally, the representatives unsuitably recommended that other customers concentrate their accounts in VRSPs. The firm's supervisory system generated alerts whenever a customer's account became more than 40 percent or 50 percent concentrated in certain high-yield products, including VRSPs, depending on the customer's risk tolerance. Despite receiving hundreds of these concentration alerts for these customers, the firm did not take steps to prevent the representatives from soliciting additional VRSP purchases after their customers' accounts already were concentrated in VRSPs.

Collectively, those customers paid more than $78,000 in sales charges for unsuitable VRSP purchases, and six of the customers suffered total realized losses exceeding $123,000, even after accounting for income earned while they held the VRSPs. This case demonstrates that having supervisory systems and procedures in place is not enough; firms must actually enforce them.

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According to FINRA, Herbert J. Sims & Co, Inc. was censured and fined $100,000 for failing to establish and implement an anti-money laundering (AML) program that was reasonably designed to detect and cause the reporting of suspicious cyber-events.

Cyber-events occurred at or through the firm wher...

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According to FINRA, Herbert J. Sims & Co, Inc. was censured and fined $100,000 for failing to establish and implement an anti-money laundering (AML) program that was reasonably designed to detect and cause the reporting of suspicious cyber-events.

Cyber-events occurred at or through the firm wherein a bad actor gained unauthorized access to a customer's or a registered representative's email account. In two of those events, the bad actor initiated a request to wire funds to third-party bank accounts. In one instance, the firm approved an $80,000 wire request and funds were sent to the third-party account (but eventually recovered). In other events, bad actors gained access to the email accounts of the firm's employees.

Although the firm maintained a cybersecurity policy, it did not reference any requirement to review cyber-events for AML purposes. Further, the firm's written AML compliance program did not mention cyber-events and the firm had no process in place for conducting reviews of such events. Thus, although the firm became aware of each cyber-event soon after they occurred, and the firm's head of information technology conducted forensic investigations of each event, the firm failed to conduct any AML investigation concerning the events or recognize that the nature of the incidents and the assets put at risk by the cyber-events potentially necessitated the filing of Suspicious Activity Reports.

The intersection of cybersecurity and anti-money laundering compliance is increasingly important in today's digital environment. Cybercriminals often use compromised accounts to move illicit funds or commit fraud. When a firm experiences a cyber-event involving unauthorized access to accounts or wire transfer requests, this may be indicative of money laundering or other financial crimes that require filing a Suspicious Activity Report.

Firms must recognize that their AML programs need to address cyber-related risks. This includes having procedures to review cyber-events for potential money laundering red flags and determining whether Suspicious Activity Reports are warranted. Simply investigating the technical aspects of a cyber-event is not sufficient; firms must also consider the financial crime implications.

This case serves as an important reminder that AML compliance programs must evolve to address emerging risks, including those posed by cyber threats.

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According to FINRA, Raymond James & Associates, Inc. was censured and fined $300,000 for sending customers trade confirmations that inaccurately disclosed the firm's execution capacity or whether the trade was executed at an average price, or inaccurately disclosed or omitted its status as a market ...

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According to FINRA, Raymond James & Associates, Inc. was censured and fined $300,000 for sending customers trade confirmations that inaccurately disclosed the firm's execution capacity or whether the trade was executed at an average price, or inaccurately disclosed or omitted its status as a market maker in the security.

When the firm acted in more than one capacity in executing orders, it did not provide each specific capacity that it acted in on the customer confirmations. Instead, the firm disclosed that it acted in a mixed capacity and that the breakdown of execution capacity is available upon request. The firm's system prevented it from populating the specific capacities that the firm acted in if it acted in more than one capacity on a transaction.

Due to a programming error, the firm sent customers trade confirmations that incorrectly disclosed transactions as average price executions when the firm filled the order in a single execution. A review of two of the firm's order management systems revealed that it incorrectly identified single executions as average price executions on confirmations issued to customers.

Moreover, the firm failed to disclose or inaccurately disclosed that it was a market maker on confirmations sent to customers. This issue stemmed from a programming error that impacted the input that identified the accurate market maker status on trade confirmations.

The firm has since updated its systems to specify each capacity that it acted in and properly identify whether transactions were average price executions, as well as corrected the programming error.

Trade confirmations are critical documents that provide customers with important information about how their orders were executed. The capacity in which a firm acts (agent, principal, or market maker) affects the obligations the firm owes to the customer and can impact the pricing of the transaction. When a firm acts as a market maker, it may have an inventory position that creates conflicts of interest. Similarly, disclosure of whether a trade was executed at an average price or a single price is important for customers to understand how their order was filled.

This case illustrates the importance of firms having accurate systems for generating trade confirmations and the need to promptly identify and correct system errors that result in inaccurate disclosures to customers.

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According to FINRA, Royal Alliance Associates, Inc., SagePoint Financial, Inc., and Securities America, Inc. were censured for failing to establish and maintain a supervisory system reasonably designed to ensure that all eligible customers received applicable sales charge waivers or special share cl...

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According to FINRA, Royal Alliance Associates, Inc., SagePoint Financial, Inc., and Securities America, Inc. were censured for failing to establish and maintain a supervisory system reasonably designed to ensure that all eligible customers received applicable sales charge waivers or special share classes in connection with rolling over 529 plans from one state plan to another.

Royal Alliance was ordered to pay $234,831.92, plus interest, in restitution to customers. SagePoint was ordered to pay $156,903.93, plus interest, in restitution to customers. Securities America was ordered to pay $122,845.59, plus interest, in restitution to customers.

The firms' written supervisory procedures did not alert firm personnel of the potential availability of Class A sales charge waivers or Class AR shares for 529 plan rollovers, and the firms did not offer training to registered representatives on this subject. Instead, the firms relied upon their registered representatives to determine whether sales charge waivers or Class AR shares on 529 plan rollovers were available, and to then complete the required forms to ensure that customers received those benefits.

The firms also failed to provide supervisors with guidance or training on how to review 529 plan rollover transactions to identify Class A sales charge waivers or Class AR shares. As a result, the firms failed to consistently apply available sales charge waivers or provide eligible customers with Class AR shares.

529 college savings plans are popular investment vehicles that provide tax advantages for education savings. When customers roll over funds from one state's 529 plan to another, they should not have to pay unnecessary sales charges if waivers are available. The failure to apply these waivers means customers paid fees they should not have been charged, reducing the amount available for education expenses.

This case highlights the importance of firms having supervisory systems that proactively identify opportunities for customers to receive sales charge waivers and reduced fees. Firms cannot simply rely on individual representatives to identify these opportunities; they must have systematic processes to ensure customers receive all benefits to which they are entitled.

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According to FINRA, Royal Alliance Associates, Inc., SagePoint Financial, Inc., and Securities America, Inc. were censured for failing to establish and maintain a supervisory system reasonably designed to ensure that all eligible customers received applicable sales charge waivers or special share cl...

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According to FINRA, Royal Alliance Associates, Inc., SagePoint Financial, Inc., and Securities America, Inc. were censured for failing to establish and maintain a supervisory system reasonably designed to ensure that all eligible customers received applicable sales charge waivers or special share classes in connection with rolling over 529 plans from one state plan to another.

Royal Alliance was ordered to pay $234,831.92, plus interest, in restitution to customers. SagePoint was ordered to pay $156,903.93, plus interest, in restitution to customers. Securities America was ordered to pay $122,845.59, plus interest, in restitution to customers.

The firms' written supervisory procedures did not alert firm personnel of the potential availability of Class A sales charge waivers or Class AR shares for 529 plan rollovers, and the firms did not offer training to registered representatives on this subject. Instead, the firms relied upon their registered representatives to determine whether sales charge waivers or Class AR shares on 529 plan rollovers were available, and to then complete the required forms to ensure that customers received those benefits.

The firms also failed to provide supervisors with guidance or training on how to review 529 plan rollover transactions to identify Class A sales charge waivers or Class AR shares. As a result, the firms failed to consistently apply available sales charge waivers or provide eligible customers with Class AR shares.

529 college savings plans are popular investment vehicles that provide tax advantages for education savings. When customers roll over funds from one state's 529 plan to another, they should not have to pay unnecessary sales charges if waivers are available. The failure to apply these waivers means customers paid fees they should not have been charged, reducing the amount available for education expenses.

This case highlights the importance of firms having supervisory systems that proactively identify opportunities for customers to receive sales charge waivers and reduced fees. Firms cannot simply rely on individual representatives to identify these opportunities; they must have systematic processes to ensure customers receive all benefits to which they are entitled.

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According to FINRA, Royal Alliance Associates, Inc., SagePoint Financial, Inc., and Securities America, Inc. were censured for failing to establish and maintain a supervisory system reasonably designed to ensure that all eligible customers received applicable sales charge waivers or special share cl...

Read More

According to FINRA, Royal Alliance Associates, Inc., SagePoint Financial, Inc., and Securities America, Inc. were censured for failing to establish and maintain a supervisory system reasonably designed to ensure that all eligible customers received applicable sales charge waivers or special share classes in connection with rolling over 529 plans from one state plan to another.

Royal Alliance was ordered to pay $234,831.92, plus interest, in restitution to customers. SagePoint was ordered to pay $156,903.93, plus interest, in restitution to customers. Securities America was ordered to pay $122,845.59, plus interest, in restitution to customers.

The firms' written supervisory procedures did not alert firm personnel of the potential availability of Class A sales charge waivers or Class AR shares for 529 plan rollovers, and the firms did not offer training to registered representatives on this subject. Instead, the firms relied upon their registered representatives to determine whether sales charge waivers or Class AR shares on 529 plan rollovers were available, and to then complete the required forms to ensure that customers received those benefits.

The firms also failed to provide supervisors with guidance or training on how to review 529 plan rollover transactions to identify Class A sales charge waivers or Class AR shares. As a result, the firms failed to consistently apply available sales charge waivers or provide eligible customers with Class AR shares.

529 college savings plans are popular investment vehicles that provide tax advantages for education savings. When customers roll over funds from one state's 529 plan to another, they should not have to pay unnecessary sales charges if waivers are available. The failure to apply these waivers means customers paid fees they should not have been charged, reducing the amount available for education expenses.

This case highlights the importance of firms having supervisory systems that proactively identify opportunities for customers to receive sales charge waivers and reduced fees. Firms cannot simply rely on individual representatives to identify these opportunities; they must have systematic processes to ensure customers receive all benefits to which they are entitled.

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According to FINRA, Suzanne Therese Charrin was barred from association with any FINRA member in all capacities for providing false information to FINRA in connection with its investigation into allegations that she engaged in an undisclosed outside business activity.

In response to FINRA's reque...

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According to FINRA, Suzanne Therese Charrin was barred from association with any FINRA member in all capacities for providing false information to FINRA in connection with its investigation into allegations that she engaged in an undisclosed outside business activity.

In response to FINRA's requests for documents and information, Charrin falsely stated that her outside business activities involved the extraction of lavender oil and manufacture of lavender oil products, when in fact, both businesses were involved in the cannabidiol (CBD) oil industry. During subsequent on-the-record testimony provided to FINRA, Charrin admitted that she had provided false information related to her activities.

Additionally, Charrin falsely stated in a response to FINRA that the outside business activity had not manufactured or tested any products when, in fact, the business involved the manufacturing and selling of CBD products. Furthermore, Charrin produced her tax returns that were requested by FINRA, but falsely represented that her accountant had incorrectly described the nature of one of her outside business activities on her federal tax return as involving CBD oil business, rather than lavender oil business. During her on-the-record testimony, Charrin admitted that she had provided false information to FINRA in response to these requests.

Providing false information to regulators is one of the most serious violations a securities professional can commit. FINRA relies on truthful and complete information from registrants to fulfill its mission of protecting investors. When individuals lie to regulators, they undermine the entire regulatory process and make it impossible for FINRA to effectively investigate potential misconduct.

In this case, Charrin's repeated false statements about the nature of her business activities suggest an intent to conceal her involvement in the CBD industry from regulators. The fact that she eventually admitted to providing false information does not excuse the initial deception. The bar sanction reflects the severity of providing false information to regulators and serves as a reminder that honesty and cooperation with regulatory inquiries are fundamental obligations of securities professionals.

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According to FINRA, Jordan Palmer John was barred from association with any FINRA member in all capacities for failing to produce information and documents requested by FINRA during the course of its investigation into the circumstances of his termination from his member firm, including whether he t...

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According to FINRA, Jordan Palmer John was barred from association with any FINRA member in all capacities for failing to produce information and documents requested by FINRA during the course of its investigation into the circumstances of his termination from his member firm, including whether he traded on unsecured funds.

The firm disclosed in a Form U5 that it had terminated its association with John for behavior that was inconsistent with the firm's Code of Business Conduct and Ethics related to activity in his brokerage account held at the firm. The firm also disclosed in the Form U5 that an internal review of John's trading activity on unsecured funds preceded its termination of his association with the firm.

FINRA needed the information it requested from John to perform its regulatory function and fully investigate potential misconduct. John's failure to respond to regulatory requests deprived FINRA of information and documents and frustrated its ability to fulfill its regulatory responsibility to investigate the circumstances of his termination from the firm and whether he improperly traded on unsecured funds.

This decision became final through the Office of Hearing Officers process.

The obligation to cooperate with FINRA investigations is a fundamental duty of all registered persons. When individuals refuse to provide requested information, they impede FINRA's ability to protect investors and maintain the integrity of the securities markets. Trading on unsecured funds is a serious allegation that raises concerns about a broker's financial responsibility and compliance with industry rules.

The bar sanction in this case reflects the severity of failing to cooperate with a regulatory investigation. Even if an individual believes they have done nothing wrong, they still have an obligation to respond to FINRA's requests for information. Failing to do so is itself a violation that warrants severe sanctions. This case serves as a reminder that registered persons must fully cooperate with regulatory investigations, even after they have left the industry.

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According to FINRA, Matthew Gary Barks was barred from association with any FINRA member in all capacities for refusing to appear for on-the-record testimony requested by FINRA in connection with its investigation into the circumstances giving rise to the Form U5 filed by his member firm.

The For...

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According to FINRA, Matthew Gary Barks was barred from association with any FINRA member in all capacities for refusing to appear for on-the-record testimony requested by FINRA in connection with its investigation into the circumstances giving rise to the Form U5 filed by his member firm.

The Form U5 disclosed that the firm had discharged Barks after it identified several customer signature irregularities on policy and account documents.

The obligation to appear for on-the-record testimony is a fundamental requirement of all registered securities professionals. When FINRA requests testimony as part of an investigation, registered persons must appear and answer questions truthfully. This obligation continues even after an individual has left the securities industry.

In this case, FINRA was investigating serious allegations involving customer signature irregularities. Such irregularities can indicate forgery, unauthorized trading, or other forms of misconduct that directly harm customers. By refusing to appear for testimony, Barks prevented FINRA from fully investigating these allegations and determining what happened.

The bar sanction reflects the industry's zero tolerance for failing to cooperate with regulatory investigations. Refusing to testify not only violates FINRA rules but also prevents FINRA from fulfilling its mission to protect investors. Even if an individual believes they have a valid explanation for the allegations against them, refusing to testify is never an acceptable response.

This case serves as a clear reminder that all registered persons have an ongoing obligation to cooperate with FINRA investigations. Refusing to appear for testimony will result in a bar from the industry. Investors should be aware that the securities industry maintains strict rules requiring cooperation with regulatory inquiries, and those who refuse to cooperate face serious consequences.

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