Bad Brokers

According to FINRA, Barclays Capital Inc., based in New York, New York, was censured, fined $1,250,000, and required to certify that it has reviewed its systems and procedures for failing to fingerprint and screen thousands of non-registered associated persons. The firm was found in violation of FIN...

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According to FINRA, Barclays Capital Inc., based in New York, New York, was censured, fined $1,250,000, and required to certify that it has reviewed its systems and procedures for failing to fingerprint and screen thousands of non-registered associated persons. The firm was found in violation of FINRA rules and Securities Exchange Act requirements related to fingerprinting and recordkeeping.

Fingerprinting requirements exist to ensure that individuals associated with broker-dealers are screened for criminal history and statutory disqualification before being permitted to work in the securities industry. This is a fundamental investor protection measure designed to prevent individuals with disqualifying criminal records or regulatory histories from gaining access to sensitive customer information, financial systems, and market infrastructure.

The findings revealed that Barclays Capital failed to timely fingerprint and screen for statutory disqualification 2,317 non-registered associated persons based in foreign locations. The firm also failed to timely fingerprint 1,663 U.S.-based non-registered associated persons. In total, the firm failed to make and keep current required fingerprint records for 3,980 non-registered associated persons. The firm's written supervisory procedures compounded the problem by failing to require individuals based in foreign locations to be fingerprinted and screened for statutory disqualification at all.

The scale of this failure is significant. Nearly 4,000 individuals were able to associate with a major global broker-dealer without undergoing the required background screening. While non-registered associated persons may not directly execute securities transactions, they may have access to customer data, internal systems, and other sensitive information. Without proper fingerprinting and screening, the firm could not verify whether any of these individuals had criminal histories or regulatory disqualifications that should have prevented their association.

For investors, this case highlights the importance of the regulatory framework that governs who is permitted to work in the securities industry. Fingerprinting and background screening are not mere administrative formalities; they are essential safeguards that help ensure the people with access to the financial system are trustworthy. When a firm of Barclays' size and stature fails to comply with these basic requirements on such a large scale, it raises questions about the rigor of the firm's overall compliance culture. Investors should take comfort that FINRA actively enforces these requirements and imposes substantial fines to deter such failures.

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According to FINRA, BBVA Securities Inc., based in New York, New York, was censured, fined $175,000, and required to certify that it has remediated the issues identified for failing to use the No Remuneration (NR) indicator on reports submitted to the Trade Reporting and Compliance Engine (TRACE). T...

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According to FINRA, BBVA Securities Inc., based in New York, New York, was censured, fined $175,000, and required to certify that it has remediated the issues identified for failing to use the No Remuneration (NR) indicator on reports submitted to the Trade Reporting and Compliance Engine (TRACE). The firm was found in violation of FINRA's TRACE reporting rules.

TRACE is FINRA's system for collecting and publicly disseminating information on secondary market transactions in fixed-income securities. Accurate reporting to TRACE is essential for market transparency, as it provides investors and market participants with reliable data about bond prices and trading activity. The NR indicator is required when a transaction is executed without a mark-up, mark-down, or commission, and its inclusion helps ensure that the pricing data available to the market accurately reflects the economic terms of each transaction.

The findings revealed that BBVA Securities failed to include the NR indicator on required TRACE reports. The underlying cause of this failure was a fundamental flaw in the firm's supervisory approach. Rather than conducting supervisory reviews of the actual TRACE reports submitted to FINRA, the firm relied on reviewing order information entered into its internal trading system. This approach was inadequate because the modifiers and indicators required for TRACE reporting, including the NR indicator, are applied by the firm's reporting software after the order information is entered into the trading system. As a result, the firm's review process could not detect errors with those indicators because it was reviewing data at a stage before the indicators were applied.

This case illustrates a common compliance pitfall: designing supervisory reviews that do not actually capture the information they are intended to monitor. A supervisory system is only effective if it reviews the right data at the right point in the process. By reviewing pre-reporting data rather than the actual submitted reports, the firm created a blind spot that allowed reporting errors to go undetected.

For investors, this case reinforces the importance of accurate fixed-income trade reporting. TRACE data is publicly available and is relied upon by investors, analysts, and regulators to assess bond market conditions and pricing fairness. When firms submit inaccurate reports, it degrades the quality of this data. Investors should be aware that TRACE data can be accessed through FINRA's website and can be used as a tool to evaluate the prices they receive on bond transactions.

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According to FINRA, BofA Securities, Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, both based in New York, New York, were censured and fined a total of $3,000,000 (of which $669,000 is payable to FINRA) for failing to establish and maintain a supervisory system and written supervisory...

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According to FINRA, BofA Securities, Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, both based in New York, New York, were censured and fined a total of $3,000,000 (of which $669,000 is payable to FINRA) for failing to establish and maintain a supervisory system and written supervisory procedures reasonably designed to detect potentially manipulative trading. The firms were also required to certify that they have remediated the identified issues.

Market manipulation undermines the integrity of the securities markets and harms investors by distorting prices and creating artificial trading activity. Wash trading and prearranged trading are two forms of manipulation in which trades are executed to create the appearance of market activity without any genuine change in ownership or economic risk. These practices are prohibited because they deceive other market participants into believing there is legitimate supply, demand, or price movement in a security.

The findings revealed that BofA Securities and Merrill Lynch relied on third-party automated surveillances to detect potentially manipulative trading, but those surveillances were deficient. The parameters used in the surveillance systems were too narrow to identify potentially manipulative wash trading and prearranged trading. Between July 2017 and October 2018, Merrill Lynch failed to have any surveillance system in place to detect wash trading in OTC securities, leaving an entire segment of the market unmonitored for over a year. The firms also failed to review alerts generated by three wash trading and prearranged trading surveillance patterns, meaning that even when the systems did flag potential issues, those flags were not acted upon.

Relying on third-party surveillance tools is a common practice in the industry, but this case demonstrates that firms cannot simply outsource their compliance obligations. Firms remain responsible for ensuring that the tools they use are effective and that the alerts generated by those tools are properly reviewed and investigated.

For investors, this case is a significant reminder that even the largest and most well-known financial institutions can have serious gaps in their compliance systems. The $3,000,000 fine reflects the severity of the violations and the potential harm to market integrity. Investors should be aware that FINRA and other regulators actively monitor for manipulative trading and hold firms accountable when their supervisory systems fall short. This case also underscores the importance of market surveillance in maintaining fair and orderly markets, which ultimately benefits all investors.

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According to FINRA, Place Trade Financial, Inc., based in Raleigh, North Carolina, was censured and fined $10,000 for making exaggerated, unwarranted, promissory, and misleading statements on its website about its services without providing a sound basis for evaluating those claims. The firm was fou...

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According to FINRA, Place Trade Financial, Inc., based in Raleigh, North Carolina, was censured and fined $10,000 for making exaggerated, unwarranted, promissory, and misleading statements on its website about its services without providing a sound basis for evaluating those claims. The firm was found in violation of FINRA's rules governing communications with the public.

FINRA Rule 2210 requires that all communications by broker-dealers with the public be fair and balanced, provide a sound basis for evaluating the facts, and not contain exaggerated, unwarranted, promissory, or misleading statements or claims. These standards exist to protect investors from deceptive marketing practices that could lead them to make investment decisions based on inaccurate or incomplete information.

The findings revealed that the firm made problematic statements on its website that did not provide a sound basis for evaluating the claims being made. What makes this case particularly notable is that FINRA had previously warned the firm about these very issues. Despite this prior warning, the firm failed to fully address all of the statements identified by FINRA for approximately three years. This prolonged failure to remediate known compliance issues, especially after a specific regulatory warning, demonstrates a lack of responsiveness to regulatory oversight.

When a regulator identifies a compliance issue and warns a firm to correct it, the firm is expected to take prompt and comprehensive action. A three-year delay in fully addressing identified issues suggests either a lack of commitment to compliance or a failure to allocate adequate resources to the remediation effort. Either way, it raises concerns about the firm's overall approach to regulatory compliance.

For investors, this case serves as an important reminder to approach marketing materials from broker-dealers with a critical eye. Firms may present their services in the most favorable light possible, and some may cross the line into exaggeration or misleading claims. Investors should look for specific, verifiable facts in any promotional material and be wary of broad or unqualified statements about performance, quality, or superiority. If a firm's marketing claims seem too good to be true, they may well be. Investors can also check FINRA BrokerCheck to review a firm's disciplinary history, which can provide valuable context about the firm's compliance track record and help inform their decision about whether to entrust the firm with their investments.

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According to FINRA, Raymond James & Associates, Inc., based in St. Petersburg, Florida, was censured, fined $525,000, and ordered to pay $26,169.04 plus interest in restitution to customers for failing to reasonably supervise customer complaint reporting and mutual fund purchase oversight. The firm ...

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According to FINRA, Raymond James & Associates, Inc., based in St. Petersburg, Florida, was censured, fined $525,000, and ordered to pay $26,169.04 plus interest in restitution to customers for failing to reasonably supervise customer complaint reporting and mutual fund purchase oversight. The firm was found in violation of its supervisory obligations under FINRA rules.

The findings revealed two significant areas of supervisory failure. First, the firm failed to reasonably supervise its reporting and timely reporting of customer complaints via FINRA Rule 4530 filings and amendments to Form U4 and Form U5. FINRA Rule 4530 requires firms to report certain events, including customer complaints alleging sales practice violations. Forms U4 and U5 are registration documents that disclose the disciplinary and complaint history of registered representatives. Timely and accurate reporting of customer complaints through these channels is essential for regulatory oversight and for providing investors with transparent information about the professionals handling their money.

Second, the firm failed to reasonably supervise at least 4.7 million mutual fund purchases that the firm's representatives made directly with mutual fund companies. The firm inadvertently employed a data filter that blocked over a million purchases from being ingested into its automated surveillance system. As a result, these transactions were not subject to the supervisory review that would normally detect excessive sales charges, breakpoint failures, or other compliance issues. Customers incurred approximately $111,724 in excessive sales charges and commissions due to this supervisory gap.

Mutual fund sales charges and breakpoints are areas where supervisory controls are critical. Breakpoints are volume discounts that reduce the sales charge on larger mutual fund purchases. When firms fail to apply these discounts or to supervise for their proper application, customers end up paying more than they should.

For investors, this case demonstrates the real financial consequences that can result from supervisory failures at broker-dealers. Even at large, well-known firms, automated systems can have flaws that go undetected, leading to customer harm. Investors who purchase mutual funds should review their confirmations to verify that appropriate breakpoint discounts have been applied, particularly for larger investments. This case also reinforces the importance of customer complaint reporting, which helps regulators identify patterns of misconduct and take corrective action to protect investors.

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According to FINRA, Raymond James Financial Services, Inc., based in St. Petersburg, Florida, was censured, fined $1,300,000, and ordered to pay $85,554.94 plus interest in restitution to customers for failing to reasonably supervise customer complaint reporting and mutual fund purchase oversight. T...

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According to FINRA, Raymond James Financial Services, Inc., based in St. Petersburg, Florida, was censured, fined $1,300,000, and ordered to pay $85,554.94 plus interest in restitution to customers for failing to reasonably supervise customer complaint reporting and mutual fund purchase oversight. The firm was found in violation of its supervisory obligations under FINRA rules.

The findings revealed two significant areas of supervisory failure at Raymond James Financial Services. First, the firm failed to reasonably supervise its reporting and timely reporting of customer complaints via FINRA Rule 4530 filings and amendments to Form U4 and Form U5. These reporting obligations are fundamental to maintaining transparency in the securities industry. When customer complaints are not reported timely and accurately, regulators lose visibility into potential patterns of misconduct, and investors are deprived of important information about the professionals handling their investments.

Second, the firm failed to reasonably supervise at least 4.7 million mutual fund purchases that the firm's representatives made directly with mutual fund companies. The firm inadvertently employed a data filter that blocked over a million purchases from being ingested into its automated surveillance system. This meant that a substantial volume of transactions went unreviewed, allowing potential compliance issues such as breakpoint failures and excessive sales charges to go undetected. Customers incurred approximately $111,724 in excessive sales charges and commissions as a result of these supervisory gaps across both Raymond James entities.

The larger fine imposed on Raymond James Financial Services compared to its affiliate, Raymond James & Associates, likely reflects the greater scope or severity of the violations attributable to this entity. Together, the two firms were ordered to pay combined restitution of $111,723.98 to affected customers.

For investors, this case underscores several important lessons. First, even the largest and most established firms can experience supervisory breakdowns that result in customer harm. Second, automated surveillance systems are only effective if they are properly configured to capture all relevant transactions. A single data filter error can exclude millions of transactions from review. Third, investors should always review their mutual fund transaction confirmations carefully, paying attention to the sales charges applied. If the charges seem higher than expected, investors should inquire about applicable breakpoint discounts. Finally, investors can use FINRA BrokerCheck to review a firm's disciplinary history and make informed decisions about where to do business.

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According to FINRA, Brex Treasury LLC, based in Salt Lake City, Utah, was censured and fined $900,000 for failing to maintain a reasonably designed anti-money laundering (AML) program, including inadequate procedures for customer identification, beneficial ownership verification, and suspicious acti...

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According to FINRA, Brex Treasury LLC, based in Salt Lake City, Utah, was censured and fined $900,000 for failing to maintain a reasonably designed anti-money laundering (AML) program, including inadequate procedures for customer identification, beneficial ownership verification, and suspicious activity reporting. The firm was found in violation of its AML obligations under FINRA rules and the Bank Secrecy Act.

Anti-money laundering programs are a cornerstone of the regulatory framework designed to prevent the financial system from being exploited for illicit purposes, including fraud, money laundering, and terrorist financing. A key component of any AML program is the Customer Identification Program (CIP), which requires firms to verify the identity of customers opening new accounts. Firms must also identify and verify the identities of beneficial owners of legal entity customers to ensure they know who ultimately controls the accounts they service.

The findings revealed that Brex Treasury's AML program failed to include reasonably designed procedures for verifying the identities of customers or for identifying and verifying the identities of beneficial owners of legal entity customers. The firm relied on regulatory technology, or regtech, that was not reasonably designed to verify the identities of new customers. While the use of technology in compliance programs is common and often beneficial, technology is only as effective as its design and implementation. In this case, the technology the firm relied upon was inadequate for the task.

As a result of these failures, the firm approved hundreds of potentially fraudulent accounts that attempted over $15 million in transactions using deposited funds that failed to settle. The firm also failed to have AML policies and procedures reasonably designed to cause the filing of Suspicious Activity Reports (SARs) in connection with transactions in these accounts when required. SARs are critical tools that alert law enforcement to potentially illicit financial activity.

For investors, this case highlights the risks that can arise when firms adopt new technologies without ensuring they are fit for purpose. While fintech and regtech solutions can enhance compliance, they must be rigorously tested and validated to ensure they meet regulatory requirements. Investors should be aware that firms with inadequate AML programs may be more susceptible to fraud, which can ultimately affect the safety of customer assets. This case also serves as a reminder that FINRA holds firms accountable for the effectiveness of their AML programs, regardless of whether those programs rely on manual processes or automated technology.

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According to FINRA, Marat Likhtenstein (CRD #2470480), a former registered representative based in Brooklyn, New York, was barred from association with any FINRA member firm in all capacities. The bar was issued on August 5, 2024, through an Acceptance, Waiver, and Consent (AWC) agreement under FINR...

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According to FINRA, Marat Likhtenstein (CRD #2470480), a former registered representative based in Brooklyn, New York, was barred from association with any FINRA member firm in all capacities. The bar was issued on August 5, 2024, through an Acceptance, Waiver, and Consent (AWC) agreement under FINRA Case #2024082598101.

Likhtenstein was found in violation of FINRA rules after he refused to provide documents and information and refused to appear for on-the-record testimony requested by FINRA. The regulator had initiated an investigation based on a Form U5 filing submitted by Likhtenstein's former member firm. The Form U5, formally known as the Uniform Termination Notice for Securities Industry Registration, is a critical regulatory document that firms must file when a broker leaves, disclosing the circumstances of the departure.

In this case, the Form U5 disclosed that Likhtenstein was discharged by his firm because he failed to disclose personal loan transactions with a client. Personal financial transactions between brokers and their clients are a serious regulatory concern in the securities industry. FINRA Rule 3240 specifically governs borrowing and lending arrangements between registered representatives and their customers. The rule requires that such arrangements be permissible under the firm's written procedures, that the firm provide prior written approval, and that the arrangement meet one of several specific conditions. Failing to disclose such transactions to the firm prevents proper supervisory oversight and can expose customers to significant financial risk.

Loan arrangements between brokers and clients can create conflicts of interest that compromise the broker's ability to provide objective financial advice. They may also indicate a deeper pattern of boundary violations or financial exploitation. When a broker borrows money from a client, the client may feel pressure to maintain the business relationship or may be reluctant to complain about unsuitable investment recommendations.

When FINRA sought to investigate these allegations by requesting documents, information, and on-the-record testimony, Likhtenstein refused to cooperate. Under FINRA Rule 8210, all associated persons are required to comply with FINRA's requests for information and testimony during investigations. Refusal to cooperate is itself a standalone violation that almost invariably results in a bar from the industry.

Without admitting or denying the findings, Likhtenstein consented to the sanction and the entry of findings against him. As a result, he is permanently prohibited from working with any FINRA-registered broker-dealer.

Investors should be aware that personal financial dealings with their broker, such as loans, are generally prohibited or heavily restricted. If your broker asks to borrow money or engages in any personal financial transaction with you, this is a significant red flag. You can verify the status and disciplinary history of any broker through FINRA's BrokerCheck system.

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According to FINRA, Sabrina Hampton (CRD #7144809), a former registered representative based in Phoenix, Arizona, was barred from association with any FINRA member firm in all capacities. The bar was issued on August 8, 2024, through an Acceptance, Waiver, and Consent (AWC) agreement under FINRA Cas...

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According to FINRA, Sabrina Hampton (CRD #7144809), a former registered representative based in Phoenix, Arizona, was barred from association with any FINRA member firm in all capacities. The bar was issued on August 8, 2024, through an Acceptance, Waiver, and Consent (AWC) agreement under FINRA Case #2022076988401.

Hampton was found in violation of FINRA rules after she refused to appear for on-the-record testimony requested by FINRA during its investigation into her potential conversion of customer funds. Conversion of customer funds is one of the most serious forms of misconduct in the securities industry. It occurs when a financial professional takes a customer's money or securities and uses them for personal purposes or for purposes not authorized by the customer. In practical terms, this is a form of theft or misappropriation that can devastate investors financially.

FINRA launched its investigation to determine whether Hampton had engaged in the conversion of customer funds. As part of that investigation, the regulator requested that Hampton appear to provide on-the-record testimony. This type of testimony is a critical investigative tool that allows FINRA to question individuals under oath about their conduct and the circumstances under which potential violations may have occurred.

Under FINRA Rule 8210, all persons associated with a FINRA member firm, including former associated persons, are required to cooperate with FINRA investigations. This includes providing testimony when requested. The obligation to cooperate is a fundamental condition of being registered in the securities industry. When individuals refuse to comply with these requests, they obstruct the regulatory process and prevent FINRA from fulfilling its investor protection mission.

Hampton's refusal to appear for testimony is particularly notable given the seriousness of the underlying allegation. Conversion of customer funds is not merely a regulatory infraction; it can also constitute criminal conduct. By refusing to testify, Hampton prevented FINRA from fully investigating the extent of any potential harm to customers.

Without admitting or denying the findings, Hampton consented to the sanction and the entry of findings against her. As a consequence, she is permanently barred from working in any capacity with a FINRA-registered broker-dealer.

This case serves as an important reminder for investors to closely monitor their accounts for any unauthorized transactions or unexplained withdrawals. Conversion of funds may not always be immediately apparent, especially if the amounts are small or if statements are being manipulated. Investors should regularly review their account statements, compare them against their own records, and report any discrepancies to their firm's compliance department immediately. FINRA's BrokerCheck tool is also available to help investors research the background of financial professionals, including any history of disciplinary actions or customer complaints.

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According to FINRA, John Christoforidis (CRD #2841315), a former registered representative based in Garden City, New York, was barred from association with any FINRA member firm in all capacities. The bar was issued on August 12, 2024, through an Acceptance, Waiver, and Consent (AWC) agreement under...

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According to FINRA, John Christoforidis (CRD #2841315), a former registered representative based in Garden City, New York, was barred from association with any FINRA member firm in all capacities. The bar was issued on August 12, 2024, through an Acceptance, Waiver, and Consent (AWC) agreement under FINRA Case #2018056490313.

Christoforidis was found in violation of FINRA rules after he refused to appear for on-the-record testimony requested by FINRA in connection with its investigation into potential sales practice violations by him. Sales practice violations encompass a broad range of misconduct in the securities industry, including but not limited to unsuitable investment recommendations, unauthorized trading, churning (excessive trading to generate commissions), misrepresentation of investment risks, and failure to disclose material information to customers. These violations directly impact investors and can result in significant financial losses.

It is worth noting the FINRA case number assigned to this matter, #2018056490313, which indicates that the underlying investigation dates back to 2018. The lengthy period between the start of the investigation and the final resolution in 2024 suggests a protracted effort by FINRA to obtain Christoforidis's cooperation. Regulatory investigations of this nature can take years to resolve, particularly when subjects are uncooperative or when the underlying issues are complex.

Under FINRA Rule 8210, registered representatives and associated persons are required to appear and provide testimony when requested by FINRA as part of its regulatory investigations. This obligation is a cornerstone of the self-regulatory framework that governs the securities industry. When individuals refuse to testify, they undermine the ability of regulators to investigate potential harm to investors and to hold wrongdoers accountable. As a result, FINRA treats a refusal to testify as an independently sanctionable offense that typically warrants the most severe penalty available: a permanent bar from the industry.

Without admitting or denying the findings, Christoforidis consented to the sanction and the entry of findings against him. He is now permanently prohibited from associating with any FINRA-registered broker-dealer in any capacity.

Investors should understand that sales practice violations can take many forms and are not always immediately recognizable. Common warning signs include frequent or unexpected trades in your account, investments that do not match your stated risk tolerance or financial objectives, and a broker who discourages you from asking questions or reviewing your account statements. If you believe your broker has engaged in sales practice violations, you may be able to recover losses through FINRA's arbitration process. Checking a broker's history through FINRA BrokerCheck before entrusting them with your money is an essential step in protecting your financial interests.

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