According to FINRA, ViewTrade Securities Inc. was censured and fined $40,000 on October 23, 2024, and required to certify it remediated the identified issues and implemented a reasonably designed supervisory system.
The firm failed to establish, maintain, and enforce a supervisory system reasonably designed to supervise the outside brokerage accounts disclosed by its registered representatives. The firm's written procedures failed to identify any steps the firm would take to verify that it actually received and reviewed duplicate statements for each disclosed outside brokerage account. The procedures also failed to provide guidance regarding how the firm would detect and investigate potential securities violations and did not impose a deadline for reviews to be completed.
In practice, the firm did not have a reasonably designed process to ensure that it timely received and reviewed duplicate statements for all disclosed outside accounts. With respect to the receipt of account statements, the firm maintained a tracking spreadsheet, but certain statements were not recorded as having been received, and the firm did not timely follow up on the missing statements. As a result, the firm failed to timely obtain account statements for certain outside brokerage accounts disclosed by the firm's associated persons. The firm also failed to timely review certain account statements that it received, including some statements that were not reviewed for more than six months after the firm received them.
In addition, the firm's system to review duplicate statements was not reasonably designed. The firm's manual review of duplicate statements was performed by a single supervisor, which was unreasonable given the volume of monthly statements subject to review. Further, the manual review did not facilitate identification of patterns of activity over time or across accounts. The firm's review of account statements was also unreasonable because it did not review for certain potential securities violations such as brokers trading ahead of customer orders or front running.
Firms require registered representatives to disclose outside brokerage accounts and obtain duplicate statements precisely to prevent misconduct such as unauthorized trading, excessive trading, front running, and other violations that might not be detected if the activity occurs in accounts away from the firm. When firms fail to properly supervise these outside accounts, it defeats the entire purpose of the disclosure requirement.
This case illustrates a supervisory system that existed on paper but failed in practice. Having a tracking spreadsheet is meaningless if no one follows up when statements are not received. Assigning review of numerous accounts to a single supervisor creates an overwhelming workload that virtually guarantees inadequate review. The failure to look for specific red flags like front running or trading ahead of customers means the review was superficial at best.
Investors whose brokers maintain outside brokerage accounts should understand that their broker's firm is required to monitor those accounts for potential misconduct. If a firm's supervisory system is inadequate, brokers have greater opportunity to engage in misconduct that harms customers. This case demonstrates the importance of robust supervisory systems, not just written procedures that look good on paper but are not actually implemented effectively.
