According to FINRA, Lilia Nia (formerly Lilia Niyazova) was assessed a deferred fine of $5,000, suspended from association with any FINRA member in all capacities for one year, and ordered to pay deferred disgorgement of $150,000 on August 2, 2023. The suspension was in effect from August 7, 2023, through August 6, 2024.
FINRA found that Nia effected unauthorized transactions in a community bank's account, which was a customer of her member firm, without obtaining instructions from any person authorized to conduct trading for the bank. Nia accepted orders for the bank's trading from a firm registered representative who was an advisory board member for the bank but not authorized to place orders for the bank. Nia also permitted the representative to place orders for the bank.
The trading effected by Nia, based upon instructions from the other representative, caused the bank to take excessive risk. The trading for the bank generated approximately $1 million in commissions for Nia, more than $370,000 of which she transmitted to the other representative through a series of separate business and financial transactions.
Because the firm lacked its own fixed-income trading desk, it was frequently required to use a "broker's broker" to acquire fixed income securities for the bank. This resulted in the bank paying approximately $1.25 million in markups to the broker's broker, in addition to commissions to the firm. As a result of this trading, the bank also spent more than $600,000 to remediate the risk of its investment portfolio.
This case demonstrates the serious harm that can result when brokers accept trading instructions from unauthorized individuals. Nia's acceptance of orders from someone who was not authorized to trade for the bank violated fundamental principles of customer protection. Customers, including institutional customers like banks, establish trading authorization to control who can make investment decisions for their accounts. When brokers ignore these authorizations, they expose customers to unauthorized and potentially harmful trading.
The trading conducted by Nia exposed the bank to excessive risk and generated substantial commissions for herself and the other representative. The fact that Nia transmitted more than $370,000 of her commissions to the other representative raises questions about the nature of their arrangement and whether financial incentives influenced the trading recommendations.
The additional markups paid to the broker's broker, totaling approximately $1.25 million, compounded the bank's losses. These markups could have been avoided or reduced if the bank had traded with a firm that maintained its own fixed-income trading desk.
Investors should ensure that their brokers only accept trading instructions from authorized individuals. They should also ask questions about how their broker is compensated and whether there are less expensive alternatives for executing transactions. Unauthorized trading is a serious violation that can result in unsuitable investments and excessive costs.
