← Broker database 2024-01-16
FINRA Fines Landolt Securities, Inc. $25,000 for Failures in Supervising Electronic Communications
According to FINRA, Landolt Securities, Inc. (CRD #28352), based in Antioch, Illinois, was censured, fined $25,000, and required to certify remediation of the issues identified in a Letter of Acceptance, Waiver and Consent (AWC) issued on January 16, 2024.
FINRA found that Landolt Securities failed to establish, maintain, and enforce a reasonable supervisory system, including written supervisory procedures (WSPs), to supervise the electronic communications of its registered representatives. Under FINRA Rule 3110(b)(4), firms must have procedures in place to review the correspondence and internal communications of their registered representatives to detect potential misconduct and protect investors.
The deficiencies identified were extensive. The firm's WSPs did not identify the personnel responsible for reviewing emails and did not state how frequently reviews should occur. The WSPs provided no reasonable guidance on how to conduct reviews or address issues identified during the review of electronic communications. They also did not require that reviews be conducted or supervised by a registered principal, which is a key safeguard in the supervisory process.
Additionally, the firm's WSPs did not include any criteria for identifying potentially problematic emails, did not describe what issues or red flags reviewers should look for, and did not explain whether and how potentially problematic emails should be escalated for further review. In practice, the firm's email review was equally deficient. The reviews were not conducted or supervised by a registered principal, and the firm did not regularly review, assess, or update the keywords used by the firm to flag emails for review.
Without admitting or denying the findings, Landolt Securities consented to the sanctions and was required to implement a supervisory system reasonably designed to achieve compliance with FINRA Rule 3110(b)(4).
This case is instructive for investors because it reveals how weak supervision of electronic communications can allow potential misconduct to go undetected. Email reviews are a frontline tool for firms to catch unsuitable recommendations, misleading statements, or unauthorized activities by their brokers. When firms fail to properly monitor these communications, investors may be exposed to increased risk. Investors should be aware that firms are required to maintain robust communication review systems, and failures in this area may signal broader supervisory weaknesses at the firm.