← Broker database 2023-08-04
Shane Nowosacki Suspended One Month for Unapproved Outside Business Activity
According to FINRA, Shane Nowosacki was assessed a deferred fine of $5,000 and suspended from association with any FINRA member in all capacities for one month on August 4, 2023. The suspension was in effect from August 7, 2023, through September 6, 2023.
FINRA found that Nowosacki engaged in an outside business activity without providing prior written notice to his member firm. Nowosacki requested approval from the firm to act as a general agent for an outside insurance company and the firm denied his request. Thereafter, while he was associated with the firm, Nowosacki sold fixed annuity contracts to firm customers and received compensation of approximately $7,210. These sales were outside the scope of Nowosacki's relationship with the firm.
FINRA rules require registered representatives to provide prior written notice to their member firms before engaging in any business activity outside the scope of their relationship with the firm. This rule serves important investor protection purposes by ensuring that firms are aware of their representatives' outside activities and can supervise those activities to prevent conflicts of interest, ensure suitability, and protect customers.
In this case, Nowosacki not only failed to provide prior notice, but actually requested approval and was explicitly denied by his firm. Despite this clear denial, he proceeded to engage in the outside business activity anyway. This demonstrates a deliberate disregard for his firm's decision and for FINRA's outside business activity rules.
The fact that Nowosacki sold fixed annuity contracts to firm customers makes his violation more serious. When registered representatives sell products to their firm's customers through outside business activities, it creates several concerns. First, the firm may not be aware of these transactions and therefore cannot supervise them. Second, customers may not understand that the transactions are not being conducted through the firm and may not be subject to the same protections. Third, there may be conflicts of interest if the representative is earning compensation that the firm is not aware of or cannot supervise.
Fixed annuities can be appropriate investments for some customers, but they also have features such as surrender charges and limited liquidity that make suitability analysis important. When these products are sold through undisclosed outside business activities, the firm cannot ensure that appropriate suitability analysis is being conducted.
Investors should be aware that their financial professionals may engage in outside business activities. They should ask questions about whether a particular transaction or service is being provided through the broker-dealer or through an outside business, and they should understand the differences in how those transactions are supervised and protected. Investors can also check FINRA's BrokerCheck system to see outside business activities that registered representatives have disclosed to their firms.