← Broker database 2023-11-20
David Ross Stuart Suspended for Paying Referral Fees to Barred Individual
According to FINRA, David Ross Stuart was fined $7,500 and suspended for three months for sharing commissions with an unregistered person who referred customers to Stuart, and for falsely attesting on annual compliance questionnaires that he was not engaged in paying referral fees.
Stuart and an unregistered person jointly met with at least one customer to discuss investments. Stuart paid approximately $148,265 to the unregistered person in connection with transactions he effectuated in the accounts of customers the unregistered person had referred. FINRA had previously barred the unregistered person from associating with any FINRA member in any capacity, and Stuart was aware that the individual was not registered.
Stuart also attested on annual compliance questionnaires that he understood he was prohibited from directly paying securities or investment advisory compensation to unregistered individuals and falsely attested that he was not engaged in paying referral fees to anyone outside of his member firm.
Paying commissions or referral fees to unregistered persons is prohibited because it allows people who are not subject to regulatory oversight or supervision to participate in securities activities and earn compensation from customer investments. This is particularly serious when the person receiving payments has been barred by FINRA, as it effectively allows someone kicked out of the industry for misconduct to continue profiting from securities activities.
The fact that Stuart paid nearly $150,000 to a barred individual over time while repeatedly certifying on compliance questionnaires that he was not paying such fees demonstrates deliberate and sustained misconduct. Stuart knew the person was barred, knew he was prohibited from paying them, yet continued the arrangement for years while lying about it.
Investors should be concerned if their broker is working with unregistered or barred individuals, as it may indicate the broker is willing to circumvent regulatory requirements and partner with people who have been kicked out of the industry for misconduct.