According to FINRA, Hovde Group, LLC has been censured, fined $60,000, and required to certify remediation for failing to establish and maintain supervisory systems for reviewing securities transactions in associated persons' outside brokerage accounts.

The firm had no written procedures or processes requiring it to track or verify that it received and reviewed account statements for each disclosed outside brokerage account. The firm also had no written procedures to ensure account statements were actually reviewed once received.

As a result, the firm failed to review any account statements for more than 140 disclosed outside brokerage accounts belonging to its associated persons. This supervisory gap could allow potential violations of securities laws or FINRA rules to go undetected.

Rules requiring firms to monitor associated persons' outside accounts exist to detect potential insider trading, front-running, or other misconduct. When firms fail to review these accounts, they cannot identify suspicious trading patterns that might indicate wrongdoing.

The firm has since revised its procedures for reviewing associated persons' disclosed outside securities accounts. Investors should know that regulatory requirements exist to help detect and prevent misconduct by financial professionals, though this case shows such systems are only effective when properly implemented.