Bad Brokers

According to FINRA, Sanctuary Securities, Inc. has been censured and fined $150,000 for failing to develop and implement an AML program reasonably designed to achieve compliance with the Bank Secrecy Act and its implementing regulations.

The firm received various exception reports from its cleari...

Read More

According to FINRA, Sanctuary Securities, Inc. has been censured and fined $150,000 for failing to develop and implement an AML program reasonably designed to achieve compliance with the Bank Secrecy Act and its implementing regulations.

The firm received various exception reports from its clearing firm but lacked reasonable written guidance on how to review them. As a result, the firm cleared many transactions identified by reports without reasonably documented evaluation of whether they raised red flags of suspicious activity.

The firm also failed to establish appropriate risk-based procedures for conducting ongoing customer due diligence, including understanding the nature and purpose of customer relationships to develop customer risk profiles. Additionally, the firm's Customer Identification Program was deficient - while procedures required collecting name, date of birth, and address, they did not require collecting identification numbers from new customers, did not provide reasonable procedures for identity verification, and did not address how to respond when the firm couldn't form a reasonable belief about a customer's true identity.

Furthermore, while the firm retained an outside consultant to conduct independent AML testing, that test failed to address material aspects of the firm's AML program.

For investors, this case highlights the importance of due diligence procedures at brokerage firms. AML programs exist not just to prevent financial crime, but also to protect customers from fraud and identity theft. When firms fail to properly verify customer identities and monitor for suspicious activity, they create vulnerabilities that can harm legitimate customers.

The case also demonstrates that simply hiring an outside consultant is not sufficient - the testing must be comprehensive and address all material aspects of the AML program.

Show Less

According to FINRA, FTP Securities LLC has been censured and fined $35,000 for failing to establish, maintain, and enforce a supervisory system, including written supervisory procedures, reasonably designed to achieve compliance with FINRA rules for reviewing and evaluating outside business activiti...

Read More

According to FINRA, FTP Securities LLC has been censured and fined $35,000 for failing to establish, maintain, and enforce a supervisory system, including written supervisory procedures, reasonably designed to achieve compliance with FINRA rules for reviewing and evaluating outside business activities (OBAs).

The firm received written notice that a registered person was engaging in investment-related OBAs and would receive a management fee and carried interest as compensation. However, the firm failed to reasonably review and evaluate whether these activities would interfere with or compromise the registered person's responsibilities to the firm or its customers, or be viewed by customers as part of the firm's business.

The firm also failed to reasonably evaluate whether to prohibit or impose specific conditions on the activities, or to determine whether they should have been treated as outside securities activities rather than OBAs.

This case underscores the importance of proper OBA supervision. When registered representatives engage in outside business activities, particularly investment-related ones, there is potential for conflicts of interest and customer confusion. Customers may believe they are receiving services through the brokerage firm when they are actually dealing with an unrelated business.

FINRA rules require firms to evaluate OBAs carefully to protect customers and maintain clear boundaries between firm business and outside activities. The distinction between OBAs and outside securities activities is also critical, as outside securities activities require higher levels of supervision and may require firm approval.

Investors should always clarify whether investment-related services are being provided through their brokerage firm or through separate business arrangements, and understand how they are protected in each scenario.

Show Less

According to FINRA, Northern Trust Securities, Inc. has been censured and fined $150,000 for failing to report commissions to TRACE for certain transactions in TRACE-eligible securities, including Corporate Debt Securities, Agency Debt Securities, Securitized Products, and U.S. Treasury Securities.
...

Read More

According to FINRA, Northern Trust Securities, Inc. has been censured and fined $150,000 for failing to report commissions to TRACE for certain transactions in TRACE-eligible securities, including Corporate Debt Securities, Agency Debt Securities, Securitized Products, and U.S. Treasury Securities.

The incomplete reporting was caused by delays associated with the firm's manual calculation of commissions. During periods of large transaction volume, the firm was unable to calculate all commissions within 15 minutes of execution. The firm erroneously determined that it was not required to report commissions for these transactions because it couldn't calculate them in time.

The firm also failed to establish and maintain a supervisory system reasonably designed to achieve compliance with FINRA Rule 6730. The firm failed to address known delays associated with its manual commission calculation process to ensure timely reporting during periods of heavy trading volume.

This issue was ultimately resolved when the firm automated the commission calculation process.

TRACE reporting is a critical component of fixed income market transparency. The Trade Reporting and Compliance Engine provides regulators and market participants with essential information about bond transactions, including pricing and commissions. When firms fail to report complete and accurate information, it undermines the transparency that protects investors.

This case illustrates how manual processes can create compliance risks, particularly during periods of high volume. Investors benefit when firms invest in automated systems that can maintain compliance regardless of market conditions. The firm's eventual automation of the process demonstrates the importance of technology in maintaining regulatory compliance.

Show Less

According to FINRA, Mariner Financial Group dba Mariner Investment Group has been censured, fined $25,000, and ordered to pay $26,864.84 plus interest in restitution to a customer for willfully violating Regulation Best Interest.

The firm failed to establish, maintain, and enforce a supervisory s...

Read More

According to FINRA, Mariner Financial Group dba Mariner Investment Group has been censured, fined $25,000, and ordered to pay $26,864.84 plus interest in restitution to a customer for willfully violating Regulation Best Interest.

The firm failed to establish, maintain, and enforce a supervisory system reasonably designed to achieve compliance with Reg BI. The firm's written supervisory procedures contained no provisions relating to Reg BI until at least May 2023, and even then discussed it only in general terms. The procedures did not address how associated persons should implement, comply with, and supervise the firm's Reg BI obligations. The firm subsequently updated its procedures to address Reg BI in greater detail.

Additionally, the firm failed to reasonably supervise a representative's recommendation of a non-traditional exchange-traded product (NT-ETP). The representative recommended that a 90-year-old customer purchase a daily-reset NT-ETP, despite the firm's prohibition on such recommendations. The representative identified the purchase as solicited on the firm's books and records, which should have alerted the firm to potential non-compliance. However, the firm failed to identify or investigate this red flag.

The customer subsequently held the NT-ETP for 292 days, resulting in a realized loss of $26,864.84.

This case is particularly important for senior investors. Non-traditional ETPs, including leveraged and inverse products, are generally unsuitable for long-term holding because they reset daily and can experience significant value decay over time. The 292-day holding period in this case was far beyond what these products are designed for.

Investors should understand that Reg BI requires brokers to act in their best interest, and firms must have systems to catch unsuitable recommendations, especially for vulnerable populations like seniors.

Show Less

According to FINRA, National Financial Services LLC has been censured and fined $100,000 for failing to timely transfer over 5,600 Unit Investment Trusts (UITs) via the Automated Customer Account Transfer Service (ACATS).

The firm sought to configure its automated transfer system to block transfe...

Read More

According to FINRA, National Financial Services LLC has been censured and fined $100,000 for failing to timely transfer over 5,600 Unit Investment Trusts (UITs) via the Automated Customer Account Transfer Service (ACATS).

The firm sought to configure its automated transfer system to block transfers of UITs within five days of redemption dates to avoid customer dissatisfaction. However, due to a coding error, the system blocked transfers of all UITs with a pending redemption, regardless of their redemption dates.

The firm effected the transfers an average of 19 business days after validating transfer instructions, far exceeding the required three-business-day deadline. Twelve UITs were not transferred until over 100 business days after validation. Because many UITs had already reached their redemption dates by the time of transfer, the firm transferred redemption proceeds for approximately 4,000 UITs instead of transferring them in kind as customers had instructed.

The firm also failed to establish a supervisory system reasonably designed to ensure timely completion of ACATS transfers for UITs with pending corporate events. Before November 2023, the firm had no supervisory system addressing UITs blocked due to pending redemptions, and even the system established afterward was not designed to achieve compliance with the three-business-day transfer deadline.

This case highlights the importance of the ACATS system for investors who wish to move their accounts between brokerages. FINRA rules require transfers to be completed within three business days to protect investors from being locked out of their assets. When firms fail to meet these deadlines, it can prevent investors from accessing their funds or making timely investment decisions.

Investors experiencing transfer delays should be aware of their rights under FINRA rules and can file complaints if transfers are not completed in a timely manner.

Show Less

According to FINRA, Tigress Financial Partners, LLC has been censured and fined $100,000 for failing to develop and implement an AML program reasonably designed to detect and report suspicious transactions given its new business line.

The firm onboarded hundreds of new customers domiciled in high...

Read More

According to FINRA, Tigress Financial Partners, LLC has been censured and fined $100,000 for failing to develop and implement an AML program reasonably designed to detect and report suspicious transactions given its new business line.

The firm onboarded hundreds of new customers domiciled in high-risk foreign jurisdictions. While the firm's written supervisory procedures stated it would monitor for suspicious activity using exception reports and account activity review, the procedures did not include reasonable guidance on what reports should be reviewed, how to detect patterns of unusual activity, or how to investigate and document investigations of red flags.

The firm relied on a periodic manual review of hard copy blotters to detect red flags. This manual process required line-by-line evaluation without sorting, risk ranking, automation, or other tools to identify trends or potentially suspicious patterns. This practice was unreasonable given the firm's customer base and transaction volume.

The firm's customer due diligence procedures were also deficient. The procedures did not reasonably identify what risk factors would subject customers to additional due diligence, and only politically exposed persons were designated as high risk. The firm did not reasonably develop risk profiles for customers utilizing shell companies, customers under FBI investigation, or customers transacting with counterparties in high-risk jurisdictions.

The firm also failed to disclose mark-ups and mark-downs on customer confirmations for corporate debt transactions.

This case demonstrates how a firm's AML program must evolve with its business. When Tigress expanded into a new business line with high-risk foreign customers, its existing manual processes became inadequate. Investors dealing with firms that serve international clients should expect those firms to have robust, automated systems for detecting suspicious activity.

Show Less

According to FINRA, NewEdge Securities, LLC (formerly Mid Atlantic Capital Corporation) has been censured, fined $275,000, and ordered to pay disgorgement of $750,746 plus interest for submitting orders to underwriters for new issue municipal bonds without disclosing they were for the firm's dealer ...

Read More

According to FINRA, NewEdge Securities, LLC (formerly Mid Atlantic Capital Corporation) has been censured, fined $275,000, and ordered to pay disgorgement of $750,746 plus interest for submitting orders to underwriters for new issue municipal bonds without disclosing they were for the firm's dealer account.

Two firm branches founded and owned by registered principals submitted orders to underwriters during retail order periods when the orders were actually for the firm's dealer account, not retail customers. A registered representative sent letters falsely stating that the branches constituted a family office/Registered Investment Advisor when they did not.

After establishing relationships with underwriters based on these false premises, the firm received improper allocations of municipal bonds. The branches then quickly resold the bonds on the secondary market, earning $750,746 in ill-gotten gains.

The firm also failed to report dealer municipal bond transactions to RTRS and failed to maintain a supervisory system to ensure compliance with MSRB rules. The firm had no supervisory processes to verify that orders for dealer accounts were accurately disclosed or that retail order period orders were for bona fide retail customers.

Furthermore, supervisors received communications reflecting that the representative was mischaracterizing the branches but took no reasonable steps to investigate. The firm also failed to preserve and review Bloomberg instant messages for eight years.

This case reveals how improper access to new issue municipal bond allocations can harm retail investors. Retail order periods exist to give individual investors priority access to new issues. When dealers fraudulently obtain these allocations and flip them for profit, they undermine the integrity of the municipal bond market and disadvantage legitimate retail purchasers.

Show Less

According to FINRA, USCA Securities LLC has been censured and fined $75,000 for conducting a securities business on 35 days while failing to maintain its minimum required net capital.

The firm incurred net capital deficiencies because it inaccurately calculated its aggregate indebtedness and net ...

Read More

According to FINRA, USCA Securities LLC has been censured and fined $75,000 for conducting a securities business on 35 days while failing to maintain its minimum required net capital.

The firm incurred net capital deficiencies because it inaccurately calculated its aggregate indebtedness and net capital when participating in firm commitment offerings as a co-manager or selling group member. Later deficiencies occurred because the firm misstated certain allowable assets, including intercompany receivables, non-allowable commissions receivable, and account balances. Additional deficiencies arose when an employee transferred money from the firm's bank account to the parent company's account.

The firm also maintained inaccurate books and records and filed inaccurate FOCUS reports, overstating net capital by amounts ranging from $38,965 to $1,020,734.

The firm's supervisory system was also deficient. While procedures assigned the FINOP responsibility for calculating net capital, there was no written guidance on how and when calculations should be performed in connection with firm commitment offerings. The procedures also failed to place limitations on fund transfers outside the firm or require FINOP review of such transfers.

Net capital requirements exist to ensure that broker-dealers have sufficient liquid assets to meet their obligations to customers. When firms operate below required net capital levels, customer assets may be at risk if the firm fails. This case demonstrates how complex transactions and inadequate controls can lead to net capital violations.

Investors should be aware that FINRA's net capital rules are a crucial protection. Firms that repeatedly violate these requirements may pose elevated risks to customer funds.

Show Less

According to FINRA, Thurston, Springer, Miller, Herd & Titak, Inc. dba Thurston Springer Financial has been censured and fined $150,000 for multiple supervisory failures including inadequate Reg BI procedures, Form CRS deficiencies, and failure to report customer complaints.

The firm's written su...

Read More

According to FINRA, Thurston, Springer, Miller, Herd & Titak, Inc. dba Thurston Springer Financial has been censured and fined $150,000 for multiple supervisory failures including inadequate Reg BI procedures, Form CRS deficiencies, and failure to report customer complaints.

The firm's written supervisory procedures discussed Reg BI only in general terms and did not establish procedures for achieving compliance with Reg BI's Care and Conflict of Interest Obligations. The firm also failed to establish procedures for filing and delivering customer relationship summaries (Form CRS), including delivering Form CRS to prospective customers, updating it when necessary, and maintaining related records.

The firm's supervisory system for email reviews was inadequate and did not address reviews to identify potential customer complaints requiring reporting. The firm failed to timely amend Forms U4 to disclose that representatives were named as defendants in customer-initiated civil litigation involving sales practice violations, and failed to disclose the litigation to FINRA.

Additionally, the firm failed to establish procedures for reviewing outside brokerage accounts, failed to obtain duplicate statements for associated persons' accounts, failed to inspect its OSJ and branch locations, and failed to conduct reasonable supervisory control testing. The designated principal failed to provide required annual reports to senior management, and the CEO failed to make required certifications.

This case illustrates how interconnected supervisory failures can be. When a firm lacks proper procedures in one area, it often indicates broader compliance weaknesses. Investors should understand that these supervisory requirements exist to detect and prevent misconduct before it harms customers.

Show Less

According to FINRA, David Lee Jerke has been barred from association with any FINRA member in all capacities for refusing to provide documents and information requested by FINRA in connection with its investigation.

FINRA opened the investigation based on allegations made in a Form U5 filed by Je...

Read More

According to FINRA, David Lee Jerke has been barred from association with any FINRA member in all capacities for refusing to provide documents and information requested by FINRA in connection with its investigation.

FINRA opened the investigation based on allegations made in a Form U5 filed by Jerke's former member firm. The Form U5 indicated that Jerke's association with the firm had been terminated because he had solicited a loan from a customer without notice to and approval from the firm.

Soliciting loans from customers is generally prohibited by FINRA rules and firm policies because it creates significant conflicts of interest and potential for customer harm. When representatives borrow money from customers, the relationship dynamic shifts in ways that can compromise the representative's ability to provide objective financial advice.

Jerke's refusal to cooperate with FINRA's investigation resulted in a bar, which is the most severe sanction FINRA can impose. A bar means that Jerke cannot associate with any FINRA member firm in any capacity.

Investors should be aware that registered representatives are required to cooperate with FINRA investigations. When representatives refuse to provide requested information, it often indicates they have something to hide. FINRA's ability to investigate potential misconduct is essential for investor protection, and those who obstruct investigations face serious consequences.

If you worked with David Lee Jerke and have concerns about your account or investments, you should review your account statements carefully and consider consulting with a securities attorney.

Show Less