Bad Brokers

According to FINRA, Letsgotrade, Inc. dba ChoiceTrade and its associated person Neville Golvala were sanctioned for negligently causing promotional materials containing material misstatements and omissions to be disseminated to potential investors. The firm was fined $15,000 and Golvala was fined $1...

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According to FINRA, Letsgotrade, Inc. dba ChoiceTrade and its associated person Neville Golvala were sanctioned for negligently causing promotional materials containing material misstatements and omissions to be disseminated to potential investors. The firm was fined $15,000 and Golvala was fined $15,000 and suspended for three months.

The case centered on two securities offerings for a holding company of the firm. The firm and Golvala engaged a third-party who had previously been barred by both the SEC and NASD to promote these offerings. This third-party prepared slides, articles, and videos that were distributed to potential investors via email and hyperlinks on crowdfunding portal offering pages.

These promotional materials contained several material misstatements and omissions about the firm's business operations. While the firm and Golvala should have known these materials contained misleading information and should not have been distributed, they negligently allowed the dissemination to continue.

This case highlights the critical importance of firms thoroughly vetting any promotional materials before distribution to investors. Even when materials are prepared by third parties, firms remain responsible for ensuring accuracy and completeness. Investors should be wary of investment opportunities promoted through crowdfunding portals and should independently verify claims made in promotional materials. Additionally, the fact that the firm hired a previously barred individual to create promotional content raises serious questions about the firm's due diligence practices. The suspension period runs from July 3, 2023, through October 2, 2023.

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According to FINRA, RBC Capital Markets, LLC was censured and fined a total of $135,000, with $67,500 payable to FINRA, for reporting orders with inaccurate capacity codes.

The firm's violations stemmed from two distinct issues. First, a coding error caused the firm to incorrectly flip the report...

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According to FINRA, RBC Capital Markets, LLC was censured and fined a total of $135,000, with $67,500 payable to FINRA, for reporting orders with inaccurate capacity codes.

The firm's violations stemmed from two distinct issues. First, a coding error caused the firm to incorrectly flip the reported capacity from principal to agency when reporting principal orders from three internal accounts to trade reporting facilities. Second, the firm failed to update its order management system when agreements with market centers changed, requiring different capacity reporting. These outdated system settings led the firm to continue reporting orders with incorrect capacity codes.

The inaccuracies extended to the firm's record-keeping, as order memoranda contained the wrong capacity designation—sometimes showing principal when it should have been agency, and vice versa. The firm's supervisory system also fell short, as its exception reports designed to catch capacity reporting errors did not include transactions from the proprietary order management system that was routing orders with inaccurate capacity.

For investors, this case underscores the importance of accurate trade reporting in maintaining market transparency and integrity. While these reporting errors may seem technical, accurate capacity codes are essential for regulators and other market participants to understand the nature of transactions. The firm has since remediated the supervisory failure by implementing proper controls. This case demonstrates how even large, established firms can have significant gaps in their systems and controls that require regulatory intervention to correct.

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According to FINRA, RBC CMA LLC was censured and fined $870,000 for reporting orders with inaccurate capacity codes and failing to establish adequate supervisory systems.

The firm used a proprietary order management system to route orders to the market, but failed to update the system when agreem...

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According to FINRA, RBC CMA LLC was censured and fined $870,000 for reporting orders with inaccurate capacity codes and failing to establish adequate supervisory systems.

The firm used a proprietary order management system to route orders to the market, but failed to update the system when agreements with market centers changed. These outdated settings caused the firm to report orders with incorrect capacity designations—marking orders as principal when they should have been agency, and vice versa. This reporting logic failure resulted in over one billion orders being reported with inaccurate capacity codes.

The record-keeping violations mirrored the reporting failures, with order memoranda containing incorrect capacity information throughout the relevant period. Most significantly, the firm lacked any procedures or reviews related to order capacity, representing a complete failure in its supervisory system. The firm had no mechanism to identify these widespread inaccuracies affecting such a massive volume of orders.

For market participants and investors, accurate order capacity reporting is fundamental to market transparency and understanding the true nature of trading activity. The scale of this violation—over one billion incorrectly reported orders—is particularly concerning as it suggests systemic failures in the firm's technology and compliance infrastructure. The firm has since addressed these deficiencies by implementing a daily order capacity review and updating its written supervisory procedures. This case illustrates how technological systems, if not properly maintained and supervised, can generate compliance violations at enormous scale.

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According to FINRA, UnionBanc Investment Services, LLC was censured and fined $75,000 for failing to comply with discovery obligations in a FINRA arbitration proceeding brought by a former registered representative.

The case arose from an arbitration claim filed by a former representative regardi...

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According to FINRA, UnionBanc Investment Services, LLC was censured and fined $75,000 for failing to comply with discovery obligations in a FINRA arbitration proceeding brought by a former registered representative.

The case arose from an arbitration claim filed by a former representative regarding his termination from the firm. When the claimant served a request for production of documents seeking emails related to his termination, the firm's initial response provided only 11 pages of email. After the claimant moved to compel additional production, the arbitrator ordered the firm to supplement its response. This resulted in the production of thousands of additional responsive emails—a stark contrast to the initial 11 pages.

However, the firm then excessively redacted a significant portion of these emails based on improper privilege assertions. The arbitrator ordered the firm to remove most redactions and revise its privilege log, but the firm failed to comply. Ultimately, the arbitration panel issued a third order directing removal of redactions and found that the firm created unwarranted impediments to discovery in violation of the arbitration forum rules. The panel awarded the claimant sanctions and attorney fees of $35,000, which the firm paid. Notably, the claimant's substantive claims were ultimately denied after the hearing.

This case serves as an important reminder that firms participating in FINRA arbitration must take their discovery obligations seriously. Creating impediments to discovery not only results in sanctions but undermines the integrity of the dispute resolution process. For investors and registered representatives involved in arbitration, this decision reinforces that arbitration panels will enforce discovery rules and sanction parties who fail to comply in good faith.

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According to FINRA, Charles Schwab & Co., Inc. was censured and fined $350,000 for sending customers transaction confirmations that omitted required disclosures regarding exchange traded notes (ETNs).

The confirmations failed to disclose that certain ETNs were callable and that early redemption c...

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According to FINRA, Charles Schwab & Co., Inc. was censured and fined $350,000 for sending customers transaction confirmations that omitted required disclosures regarding exchange traded notes (ETNs).

The confirmations failed to disclose that certain ETNs were callable and that early redemption could affect the ETNs' yield—both material pieces of information for investors. The firm relied on a third-party vendor to provide redemption information about securities, which was then used in transaction confirmations sent to customers. For some ETNs, the vendor provided inaccurate or incomplete information, while for others, the firm received accurate information but still inaccurately stated on confirmations that the ETNs were not redeemable.

The firm's supervisory system was inadequate to prevent these failures. Schwab had no procedures to review the accuracy of redemption features beyond comparing information to the data provided by its vendor, and did not verify the vendor's information concerning callability or redemption features. This represented a failure to establish, maintain, and enforce a supervisory system reasonably designed to achieve compliance with transaction confirmation rules.

After identifying the issue, Schwab self-reported to FINRA, notified customers of the correct redemption information, and revised its procedures to require personnel to validate ETN redemption data and review confirmation data for accuracy. For investors, this case highlights the importance of understanding the terms and risks of complex products like ETNs. Investors should review offering documents directly rather than relying solely on transaction confirmations, and should be aware that even major firms can have gaps in their supervisory systems.

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According to FINRA, TD Ameritrade Clearing, Inc. was censured and fined $500,000 for sending confirmations to customers that failed to disclose required information about callable securities.

When customers purchased ETNs and preferred securities, the confirmations failed to disclose that these s...

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According to FINRA, TD Ameritrade Clearing, Inc. was censured and fined $500,000 for sending confirmations to customers that failed to disclose required information about callable securities.

When customers purchased ETNs and preferred securities, the confirmations failed to disclose that these securities were subject to redemption. For ETNs specifically, the confirmations also failed to disclose that redemption before maturity could affect the securities' yields. These disclosures are required because call features and early redemption can significantly impact investment returns.

Instead of providing specific disclosure about the callable nature of the securities purchased, the firm relied upon general language within confirmations stating that if the transaction involved callable securities, the call features could affect yield and that complete information would be provided upon request. This generic disclosure failed to alert customers that the specific securities they purchased were in fact callable.

The firm ultimately self-reported these failures to FINRA and voluntarily employed corrective action, including notifying customers that the securities in question were callable and, with respect to ETNs, that early redemption could affect yields. For investors, this case emphasizes the importance of understanding the terms of securities being purchased, particularly complex products like ETNs and preferred securities. Call provisions can significantly impact expected returns, and investors should seek out information about these features before investing. While transaction confirmations should provide this information, investors should also review prospectuses and other offering documents to fully understand product features and risks. The self-reporting and voluntary corrective action by TD Ameritrade demonstrates good faith in addressing compliance failures.

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According to FINRA, Evercore Group L.L.C. was censured and fined $100,000 for multiple failures related to its market access controls and procedures.

The firm failed to establish, document, and maintain reasonably designed credit threshold controls for customers to whom it provided market access....

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According to FINRA, Evercore Group L.L.C. was censured and fined $100,000 for multiple failures related to its market access controls and procedures.

The firm failed to establish, document, and maintain reasonably designed credit threshold controls for customers to whom it provided market access. Evercore generally assigned customers to pre-defined, tiered credit limits based solely on each customer's largest notional value trading day over a two-year period, without sufficiently considering the customer's business, financial condition, trading patterns, or other relevant information. This approach frequently resulted in credit limits that were too high to be effective risk management tools.

The firm's erroneous order controls were also inadequate. Single order quantity controls were set too high to prevent erroneous orders in certain securities, including maximum share quantity and maximum order value controls. The firm used uniform thresholds for all securities without considering individual security characteristics, and procedures did not adequately explain the rationale for control settings. Some customers were assigned thresholds that exceeded their aggregate credit threshold, creating additional risk.

The supervisory system for market access controls was also deficient. The firm had no written procedures for reviewing orders that triggered soft blocks, did not contemporaneously document soft block reviews, and did not describe how the firm supervised soft block alert reviews. The firm also modified control parameters without documented procedures or rationale for when modifications were appropriate.

This case illustrates the complex regulatory requirements surrounding market access and the importance of robust controls to prevent erroneous trades and manage risk. For market participants, these controls are essential safeguards that protect market integrity and prevent potentially catastrophic trading errors.

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According to FINRA, Credit Suisse Securities (USA) LLC was censured and fined $900,000 for multiple failures related to reporting transactions in TRACE-eligible securities.

The firm failed to timely report thousands of transactions in securitized products, corporate debt, and agency debt securiti...

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According to FINRA, Credit Suisse Securities (USA) LLC was censured and fined $900,000 for multiple failures related to reporting transactions in TRACE-eligible securities.

The firm failed to timely report thousands of transactions in securitized products, corporate debt, and agency debt securities to TRACE. Most late reports, ranging from a few minutes to several days late, resulted from manual errors or omissions that delayed reports, or amendments not submitted timely. This late reporting constituted a pattern or practice without exceptional circumstances.

The firm also submitted numerous TRACE reports with inaccurate indicators due to coding errors. These included inaccurate No Remuneration indicators for U.S. Treasury securities and securitized products, inaccurate Non-Member Affiliate Principal Transaction indicators, inaccurate contra-party identifiers for corporate bonds, and inaccurate execution times for U.S. Treasury securities and securitized products. While the firm identified and remediated each coding error, some violations continued for 18 to 32 months before being addressed.

Additionally, Credit Suisse failed to timely notify FINRA of new issue offerings in TRACE-eligible asset-backed securities at an error rate exceeding five percent. The firm's supervisory system was not reasonably designed to achieve compliance with TRACE reporting rules. Although supervisory reviews identified high numbers and percentages of late reports, the firm did not fully address underlying causes and instead established internal error rate targets that were too high to address the ongoing pattern of late reporting.

For market participants and investors, accurate and timely TRACE reporting is essential for price transparency in fixed-income markets. These reporting failures undermined market transparency for an extended period. The firm's self-reporting of various issues demonstrates some commitment to compliance, though the systemic nature of the failures raises questions about the adequacy of the firm's compliance infrastructure.

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According to FINRA, BGC Financial, L.P. was censured and fined $50,000 for mismarking orders under Regulation SHO and failing to establish adequate supervisory systems.

The firm failed to include two proprietary accounts in calculations of its overall net position in equity securities being sold,...

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According to FINRA, BGC Financial, L.P. was censured and fined $50,000 for mismarking orders under Regulation SHO and failing to establish adequate supervisory systems.

The firm failed to include two proprietary accounts in calculations of its overall net position in equity securities being sold, which caused certain orders to be mismarked as long or short under Regulation SHO Rule 200(g). The problem arose because the firm aggregated accounts into independent trading units without creating a written plan of organization as required by Regulation SHO Rule 200(f)(1). Without qualifying for independent treatment under the rules, the firm's order management system incorrectly excluded these proprietary accounts' positions when calculating the firm's net position, resulting in mismarked trades.

The supervisory failures were equally significant. BGC Financial did not take any steps to verify that its order management system was achieving compliance with Regulation SHO, such as conducting regular order-marking reviews. The firm's written supervisory procedures did not contain descriptions of any process to ensure Rule 200 compliance and did not identify any individual responsible for such compliance.

Following FINRA's cycle examination, the firm undertook remedial measures including an internal audit of trading desks, implementing new procedures for reviewing order marking, revising written supervisory procedures, and modifying procedures to include written plans of organization for the desks. This case highlights the technical but important requirements of Regulation SHO, which are designed to prevent abusive short selling practices. Even unintentional violations resulting from system design flaws can lead to significant sanctions. Firms must ensure their trading systems properly account for regulatory requirements and maintain adequate supervisory oversight.

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According to FINRA, Open to the Public Investing, Inc. was censured and fined $500,000 for failing to meet best execution obligations and disseminating misleading retail communications.

The firm failed to conduct reasonable reviews of the execution quality of customer orders. Its execution qualit...

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According to FINRA, Open to the Public Investing, Inc. was censured and fined $500,000 for failing to meet best execution obligations and disseminating misleading retail communications.

The firm failed to conduct reasonable reviews of the execution quality of customer orders. Its execution quality reviews were limited to examining its clearing firm's quarterly Rule 606 reports, which did not provide any data specific to the firm's execution quality or the quality of executions available from competing markets. This minimal review process was inadequate to fulfill the firm's best execution obligations to customers.

The supervisory system was fundamentally flawed. The firm's supervisory reviews were not reasonably designed to evaluate whether best execution obligations were being met, and written supervisory procedures provided no guidance for conducting execution quality reviews. Most remarkably, the procedures were not tailored to the firm's business—they addressed best execution for fixed-income securities, which the firm did not offer, while failing to address equity trading, which was the firm's only business.

The firm also failed to disclose at account opening or annually thereafter that it received payment for order flow through its routing arrangements—a material conflict of interest that customers have a right to know. Additionally, the firm disseminated retail communications containing misleading statements.

This case is particularly concerning because it involves a firm that markets itself as investor-friendly but failed to meet basic obligations to ensure customers received quality executions. Best execution is a fundamental obligation that directly impacts customer investment returns. Investors should be aware that not all brokerage firms adequately review execution quality, and payment for order flow arrangements can create conflicts of interest. The failure to properly disclose these arrangements prevented customers from making informed decisions about where to place their trades.

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