According to FINRA, Michael Cheng Ning was barred from association with any FINRA member in all capacities for failing to produce documents and information requested by FINRA during its investigation into whether certain securities recommendations by registered representatives at his member firm were in the best interests of their customers.
Ning's situation involves important responsibilities that continue even after a firm ceases operations. His firm had filed a Uniform Request for Withdrawal from Broker-Dealer Registration (Form BDW), withdrawing its FINRA registration. At the time of FINRA's requests, Ning was designated as the custodian for the books and records of his former firm—a role carrying significant legal obligations.
FINRA requested that Ning provide documents and information concerning recommendations of, and communications about, certain identified securities made to specific customers by two former firm brokers. These requests sought books and records that the firm was required to retain under securities regulations. The documents and information were material to FINRA's investigation because they related to securities recommendations made by the former firm brokers and whether those recommendations were in the customers' best interests.
The best interest standard is fundamental to investor protection. Regulation Best Interest (Reg BI) requires broker-dealers and their associated persons to act in the best interest of retail customers when making recommendations, including having a reasonable basis to believe the recommendation is in the customer's best interest based on the customer's investment profile. Investigations into compliance with this standard require access to communications and documentation about the recommendations.
Despite FINRA's requests and Ning's legal obligations as designated custodian, he failed to produce the requested documents and information. This failure obstructed FINRA's ability to investigate whether customers received suitable recommendations and were treated in accordance with regulatory requirements.
The custodian role exists specifically to ensure that firm records remain available for regulatory purposes even after a firm ceases operations. When designated custodians fail to fulfill this obligation, they undermine investor protection by preventing regulators from investigating potential misconduct and obtaining remedies for harmed investors.
Investors should understand that their rights do not disappear when a firm closes. Regulatory investigations can continue, and designated custodians have legal obligations to preserve and produce firm records. Ning's bar reflects the seriousness of failing to meet these post-closure obligations.
