According to FINRA, Adam James Makkai was fined $5,000 and suspended for 30 days after paying securities transaction-based compensation totaling $27,037.52 to an unregistered person, following a National Adjudicatory Council decision that modified the sanctions imposed by the Office of Hearing Officers.
The case began when a person at Makkai's firm was dismissed and offered to sell Makkai his book of business, including brokerage customers and investment adviser clients. The day after the firm dismissed the person, it assigned his brokerage accounts to Makkai. Despite completing a compliance questionnaire attesting that the firm prohibited paying securities transaction-based compensation to another person without prior approval, Makkai paid the unregistered person $27,037.52 in commissions from securities transactions for the accounts.
These payments included both continuing commissions and commissions from new transactions Makkai effected after the accounts were reassigned to him. Makkai's supervisor and the firm's Strategic Business Solutions group knew he was negotiating to purchase the book of business, but Makkai never disclosed he was already paying commissions to the unregistered person. When Makkai asked his supervisor whether he could pay the person commissions, the supervisor unequivocally told him he was not allowed to share transaction-based commissions with an unregistered person and could only make payments pursuant to a final, written contract approved by the firm.
Despite this clear guidance, Makkai made four additional payments to the unregistered person after being told he could not do so. In total, Makkai paid the person $101,503.50 in commissions and investment adviser fees. He and the person never reached a final written agreement, yet Makkai never asked for any money back, viewing the payments as a "gesture of goodwill" rather than part of a purchase price.
Paying unregistered persons for securities transactions violates fundamental registration requirements. These rules exist because only properly registered and supervised individuals should receive compensation for securities activities. Unregistered persons have not passed qualification exams, are not subject to firm supervision, and may be statutorily disqualified from the industry.
For investors, this case demonstrates the importance of ensuring that everyone involved in securities transactions is properly registered and supervised. The relatively light sanctions—a 30-day suspension and $5,000 fine—reflect that while Makkai's conduct violated important rules, there was no customer harm and his actions related to business arrangements rather than customer-facing misconduct. However, the case illustrates how business arrangements between registered persons must comply with registration rules and firm approval requirements.
