Bad Brokers

According to FINRA, Spartan Capital Securities, LLC was censured, fined $115,000, and required to retain an independent consultant to review its compliance with FINRA Rule 8210 information requests.

FINRA Rule 8210 requires member firms to promptly provide information and documents when requested...

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According to FINRA, Spartan Capital Securities, LLC was censured, fined $115,000, and required to retain an independent consultant to review its compliance with FINRA Rule 8210 information requests.

FINRA Rule 8210 requires member firms to promptly provide information and documents when requested during regulatory investigations and examinations. The firm failed to timely respond to three FINRA Rule 8210 requests, not fully complying until after FINRA issued four follow-up requests and pursued three expedited proceedings to compel compliance.

The investigation revealed that the firm failed to reasonably supervise its compliance with these requirements. Among the deficiencies, the firm had no reasonable system to track deadlines for Rule 8210 requests. The compliance department was inadequately staffed and existing staff were not properly trained to respond to regulatory requests.

Despite facing three expedited enforcement proceedings for response failures in less than two years, the firm failed to take reasonable measures to improve its supervision system.

This is notably the second FINRA action against Spartan Capital in this enforcement period, following a separate action related to disclosure failures. For investors, repeated regulatory violations by the same firm may indicate systemic compliance issues.

Timely responses to regulatory requests are essential for effective oversight of the securities industry. When firms obstruct or delay regulatory investigations, it hampers FINRA's ability to protect investors and maintain market integrity. Investors should consider a firm's regulatory history when selecting a broker-dealer.

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According to FINRA, BBVA Securities Inc. was censured and fined $150,000 for failing to establish adequate supervision of variable annuity exchange rates among its registered representatives.

Variable annuity exchanges occur when a customer replaces one annuity product with another. While sometim...

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According to FINRA, BBVA Securities Inc. was censured and fined $150,000 for failing to establish adequate supervision of variable annuity exchange rates among its registered representatives.

Variable annuity exchanges occur when a customer replaces one annuity product with another. While sometimes beneficial, exchanges can be problematic if done excessively to generate commissions rather than serve customer interests. Regulators therefore require firms to monitor representatives' exchange patterns.

BBVA Securities relied on transaction-by-transaction approvals from regional supervisors along with periodic reports of each representative's exchange activity. However, the periodic reports only included a single month's transactions and did not calculate the representative's overall rate of exchanges.

The firm had no report, alert, or other system to surveil for representatives with elevated variable annuity exchange rates that might indicate churning or unsuitable recommendations. The firm's written supervisory procedures provided no guidance on what exchange rate or other characteristics would indicate a pattern requiring further review.

Without proper surveillance of exchange rates over time, the firm could miss representatives who were systematically recommending unnecessary exchanges to generate commissions at customers' expense. Variable annuity exchanges often involve surrender charges, new commission cycles, and potential loss of benefits, making inappropriate exchanges particularly harmful to customers.

Investors should be cautious about recommendations to exchange variable annuities and should ask representatives to clearly explain the costs and benefits of any proposed exchange compared to keeping their existing annuity.

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According to FINRA, G.research, LLC was censured, fined $30,000, and required to certify remediation of its Form CRS compliance issues.

Form CRS (Customer Relationship Summary) is a disclosure document that broker-dealers must provide to retail investors. It includes important information about t...

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According to FINRA, G.research, LLC was censured, fined $30,000, and required to certify remediation of its Form CRS compliance issues.

Form CRS (Customer Relationship Summary) is a disclosure document that broker-dealers must provide to retail investors. It includes important information about the firm's services, fees, conflicts of interest, and disciplinary history. The form helps investors make informed decisions about whether to establish a relationship with a financial firm.

FINRA found that G.research willfully violated securities laws by providing an inaccurate response to the disciplinary history question on its Form CRS. The firm and four of its control affiliates had prior reportable legal or disciplinary history, but the firm failed to answer 'Yes' to this question or direct investors to Investor.gov/CRS where they could research the firm's history.

The firm did not correct this inaccuracy until almost three years after its initial Form CRS filing, meaning investors were deprived of this material information during that period.

Additionally, the firm's written supervisory procedures contained no provisions relating to Form CRS for over a year after the implementation date. Even after updating the procedures, they failed to identify who was responsible for Form CRS compliance and did not prescribe procedures for reviewing whether updates were required or whether the form included all required information.

Investors should always review a firm's Form CRS and check BrokerCheck and Investor.gov for complete information about a firm's and representative's regulatory history before investing.

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According to FINRA, ACP Securities, LLC was censured and fined $20,000 for failing to disclose on its Form CRS that one of its associated persons had disciplinary history.

Form CRS requires broker-dealers to disclose whether they or their financial professionals have legal or disciplinary history...

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According to FINRA, ACP Securities, LLC was censured and fined $20,000 for failing to disclose on its Form CRS that one of its associated persons had disciplinary history.

Form CRS requires broker-dealers to disclose whether they or their financial professionals have legal or disciplinary history. This information is critical for retail investors evaluating whether to do business with a firm.

The associated person's disciplinary history included violations related to using non-firm-approved communications platforms to communicate with customers about firm business. This information was readily available to the firm through FINRA's Central Registration Depository (CRD) and BrokerCheck.

Despite having access to this information, the firm failed to update its Form CRS to disclose the associated person's disciplinary history for approximately two and a half years after the individual joined the firm. During this entire period, retail investors were not informed of this relevant disciplinary history.

This case highlights the importance of firms maintaining accurate and current Form CRS disclosures. When representatives with disciplinary history join a firm, the firm's Form CRS must be updated promptly to reflect this information.

Investors are encouraged to use FINRA's BrokerCheck tool (brokercheck.finra.org) to research their financial professionals independently. BrokerCheck provides detailed information about brokers' qualifications, employment history, and any regulatory actions, customer disputes, or criminal matters. This independent research can supplement the information firms are required to provide.

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According to FINRA, CUNA Brokerage Services, Inc. was censured and fined $30,000 for failing to preserve approximately 14,000 records containing information collected from retail customers regarding retirement plan rollovers.

Under Regulation Best Interest (Reg BI), broker-dealers must act in the...

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According to FINRA, CUNA Brokerage Services, Inc. was censured and fined $30,000 for failing to preserve approximately 14,000 records containing information collected from retail customers regarding retirement plan rollovers.

Under Regulation Best Interest (Reg BI), broker-dealers must act in their customers' best interests when making recommendations, including recommendations to roll over employer-sponsored retirement plans into individual retirement accounts (IRAs). Firms are required to collect and maintain records documenting the information they gathered to support these recommendations.

CUNA Brokerage inadvertently deleted these required records while transitioning its business away from providing services to retail customers. The deleted records contained important information collected pursuant to Reg BI, including whether a potential transfer was a forced distribution from the retirement plan, the importance to customers of protecting retirement assets from creditors or legal judgments, and the importance of flexibility in distribution options.

These records are essential for demonstrating that the firm properly evaluated whether rollover recommendations were in customers' best interests. Without them, it becomes impossible to verify that appropriate analysis was conducted before recommending that customers move their retirement savings.

This case illustrates the importance of proper records retention, particularly during business transitions. Retirement rollover decisions have significant long-term implications for investors, and the records documenting the basis for these recommendations must be preserved for regulatory review and potential customer disputes.

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According to FINRA, MML Investors Services, LLC was censured and fined $700,000 for failing to reasonably supervise the process of representatives creating consolidated reports for customers.

Consolidated reports combine information from multiple investment accounts into a single statement for cu...

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According to FINRA, MML Investors Services, LLC was censured and fined $700,000 for failing to reasonably supervise the process of representatives creating consolidated reports for customers.

Consolidated reports combine information from multiple investment accounts into a single statement for customer convenience. These reports can include accounts held at the broker-dealer and outside accounts, with outside account information sometimes entered manually by representatives.

MML Investors' supervisory system failed to alert supervisors when representatives made manual entries in consolidated reports or failed to upload documentation supporting manually entered valuations. While the firm required supervisors to review draft reports before delivery to customers, this review did not include verification of manually entered assets.

The firm also had no system to prevent representatives from making account information available to customers online before supervisory review occurred.

These supervisory gaps enabled one representative to enter fictitious brokerage accounts purportedly held at the firm into the consolidated reporting system. The firm failed to detect that this representative was using falsified data because it did not review manual account entries as required.

Following the discovery, the firm compensated customers for damages related to the representative's actions and improved its supervisory systems.

This case demonstrates the risks of consolidated reports with manually entered data. Investors should verify that account information on consolidated reports matches actual account statements from their financial institutions. Discrepancies could indicate data entry errors or, in rare cases, fraud.

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According to FINRA, National Financial Services LLC was censured and fined $175,000 for misreporting order information and failing to disclose material aspects of venue relationships in regulatory reports.

SEC Rules 605 and 606 require market centers and broker-dealers to provide detailed reports...

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According to FINRA, National Financial Services LLC was censured and fined $175,000 for misreporting order information and failing to disclose material aspects of venue relationships in regulatory reports.

SEC Rules 605 and 606 require market centers and broker-dealers to provide detailed reports about their order routing practices and execution quality. These reports help investors understand how their orders are handled and whether they are receiving best execution.

In its Rule 606(a) quarterly reports, the firm improperly classified customer market and limit orders as 'other' orders when routed to alternative trading systems as mid-point peg orders. For venues with tiered pricing, the firm only linked to current price lists rather than providing required information about the specific tier and pricing applicable to the firm.

The firm also failed to provide sufficient detail about fees and rebates for certain venues and listed an incorrect venue name after that venue was acquired by another broker-dealer.

In Rule 605 monthly reports, the firm erroneously excluded immediate-or-cancel mid-point peg orders for seven months after FINRA informed them of the error, resulting in approximately one billion unreported transactions.

The firm eventually remediated these issues by correctly classifying orders and updating its disclosures.

This case illustrates the complexity of trade reporting requirements and the importance of accurate data. Investors and regulators rely on these reports to evaluate execution quality across the industry.

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According to FINRA, Paulson Investment Company LLC was censured and fined $40,000 for failing to establish adequate supervisory systems for outside business activities of its registered representatives.

FINRA rules require representatives to provide written notice to their firms before engaging i...

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According to FINRA, Paulson Investment Company LLC was censured and fined $40,000 for failing to establish adequate supervisory systems for outside business activities of its registered representatives.

FINRA rules require representatives to provide written notice to their firms before engaging in outside business activities (OBAs). Firms must then evaluate whether to approve these activities and what additional supervision may be required.

The investigation revealed that the firm knew one of its representatives was managing an investment fund that provided loans to early-stage companies. The representative facilitated four loans totaling over $3 million from 18 investors and received compensation for this work.

The investors received secured notes and warrants to purchase stock in the early-stage companies. While none of the investors were firm customers and none lost money, the firm failed to properly evaluate these activities as required by FINRA Rule 3270.01. The firm did not determine whether the activities constituted OBAs requiring approval and did not maintain records of its evaluation or approval process.

Outside business activities can create conflicts of interest and expose investors to risks that may not be covered by the protections available for securities transactions conducted through a broker-dealer. Proper supervision ensures that firms are aware of their representatives' activities and can evaluate potential risks.

Investors should be cautious about investment opportunities presented by their brokers outside of the broker-dealer relationship, as these may not have the same investor protections.

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According to FINRA, Moomoo Financial Inc. was censured, fined $750,000, and required to remediate its influencer marketing practices after communications by paid influencers were found to be misleading and not properly disclosed as advertisements.

The firm paid influencers to promote it on social...

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According to FINRA, Moomoo Financial Inc. was censured, fined $750,000, and required to remediate its influencer marketing practices after communications by paid influencers were found to be misleading and not properly disclosed as advertisements.

The firm paid influencers to promote it on social media, compensating them for each new account opened through unique referral links or per promotional post. Customers opened and funded more than 29,000 new accounts through these influencer referral links.

The influencer communications contained multiple violations. They claimed the firm charged zero commissions without disclosing that other fees may apply or linking to the fee schedule. They made false and misleading claims suggesting that the firm's FINRA membership meant customers' investments were safe. They also failed to clearly identify posts as paid advertisements.

The firm failed to review and approve all influencer posts before publication and failed to preserve records of these communications, including dates of use and approvals. Even when the firm did review communications, it did not maintain records of who approved them or when.

Additionally, the firm failed to provide initial and annual privacy notices to customers as required by SEC Regulation S-P.

This case highlights the regulatory challenges of social media marketing. Broker-dealers are responsible for the content their paid promoters publish. Investors should be skeptical of social media financial promotions and independently verify claims about fees and protections. FINRA membership does not guarantee investment safety.

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According to FINRA, Independent Financial Group, LLC was censured, fined $75,000, and ordered to pay restitution to customers who did not receive available sales charge waivers on 529 plan rollovers.

When customers roll over 529 college savings plan investments from one state's plan to another, s...

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According to FINRA, Independent Financial Group, LLC was censured, fined $75,000, and ordered to pay restitution to customers who did not receive available sales charge waivers on 529 plan rollovers.

When customers roll over 529 college savings plan investments from one state's plan to another, sales charge waivers or reduced-cost Class AR shares may be available. These waivers can save investors significant money, but firms must have systems in place to identify and apply them.

The firm failed to establish policies and procedures to alert representatives about the potential availability of sales charge waivers or Class AR shares for 529 plan rollovers. The firm did not provide training to representatives regarding these waivers or give supervisors guidance on how to review rollover transactions for waiver eligibility.

Although the firm later revised its procedures to direct representatives to confirm waiver eligibility with plan sponsors, the revised procedures still failed to articulate firm policy regarding whether to provide waivers and established no system for monitoring that available waivers were actually applied.

As a result, at least 18 customers with rollover transactions totaling at least $837,000 were charged at least $17,000 in fees that should have been waived. The firm must retain an outside consultant to identify all affected customers and calculate the restitution owed.

Investors considering 529 plan rollovers should ask about available sales charge waivers and verify that any applicable waivers are applied to their transactions.

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