According to FINRA, Ronald G. Smith was barred from association with any FINRA member in all capacities for refusing to provide information and documents requested by FINRA in connection with its investigation into potential excessive trading of customer accounts at his member firm.
FINRA's investigation focused on whether Smith engaged in excessive trading, also known as churning, in customer accounts. Churning occurs when a registered representative exercises control over a customer's account and effects transactions that are excessive in size or frequency in light of the customer's financial situation and investment objectives. The primary purpose of churning is to generate commissions for the representative rather than to benefit the customer.
While Smith submitted a partial response to FINRA's requests, he failed to provide all requested information and documents, most notably his electronic communications. Electronic communications are frequently critical evidence in investigations of trading practices, as they can reveal the representative's motivations, communications with customers, and whether trading decisions were made in customers' best interests.
The refusal to provide complete responses to FINRA requests represents a serious violation of the fundamental obligation to cooperate with regulatory investigations. All registered individuals must respond completely and truthfully to FINRA requests for information and documents. This obligation exists regardless of whether the individual believes the investigation has merit or whether providing the information might be personally detrimental.
When registered individuals refuse to cooperate with investigations, they obstruct FINRA's ability to protect investors and maintain market integrity. FINRA cannot effectively investigate potential misconduct and protect investors if registered individuals are permitted to withhold requested information.
The bar sanction prevents Smith from working in any capacity with any FINRA member firm. This severe sanction reflects the seriousness with which FINRA views failures to cooperate with investigations. Without cooperation from industry participants, FINRA cannot fulfill its regulatory mission of investor protection.
Investors should understand that registered representatives have ongoing obligations to regulatory authorities that continue throughout their careers. When individuals refuse to comply with these obligations, it raises serious questions about their commitment to ethical conduct and regulatory compliance. Investors can check the disciplinary history of financial professionals through FINRA's BrokerCheck tool before entrusting them with their investments.
