According to FINRA, PFS Investments Inc. was censured and fined $60,000 on July 12, 2024, for failing to establish, maintain, and enforce a supervisory system reasonably designed to achieve compliance with FINRA rules regarding outside business activities.

The firm was on notice that three of its registered representatives co-owned and operated an outside business activity. Although the firm maintained written supervisory procedures requiring representatives to disclose outside business activities in writing consistent with FINRA Rule 3270, the firm did not enforce that requirement. The firm instructed the representatives that they could no longer remain associated with it unless they terminated their involvement with the outside business activity.

However, the three representatives continued actively working on the outside business activity, and the business continued to make significant sales to its customers. Despite this, the representatives did not immediately leave the firm, nor did the firm ever require them to provide written notice of their involvement with the outside business activity. During a nearly two-year period, hundreds of customers purchased approximately $33 million in e-commerce storefronts and digital real estate from the outside business activity.

This case highlights the critical importance of firms properly supervising and enforcing their policies regarding outside business activities. FINRA Rule 3270 requires registered representatives to provide written notice to their firm before engaging in any outside business activity, which allows the firm to evaluate potential conflicts of interest and ensure proper supervision. Investors should be aware that their registered representatives must disclose outside business activities to their firms, and undisclosed activities may indicate inadequate supervision or potential conflicts of interest.