← Broker database 2022-07-18
Wilson-Davis & Co. Fined $100,000 for Customer Reserve and Securities Control Violations
According to FINRA, Wilson-Davis & Co., Inc. was censured and fined $100,000 for failing to accurately calculate customer and proprietary account broker reserves and maintain proper control over customer securities.
The firm had multiple deficiencies in its customer reserve account. Initial deficiencies ranged from $101,468 to $245,837 because the firm improperly debited customer prepayments and fees without proper authorization. Later, the firm had deficiencies ranging from $571,958 to $693,703 resulting from a concentrated margin position in a single customer account holding one stock. The firm also failed to establish and maintain a required PAB account when it reentered the correspondent clearing business, resulting in hindsight deficiencies in PAB reserves after an introducing firm provided a $100,000 clearing deposit.
Additionally, the firm failed to maintain customer securities in good control location because its agreement with the custodian for its money market sweep account did not properly provide that securities were held for the exclusive benefit of customers and free from liens or encumbrances. The amounts at issue ranged from $10,000 to approximately $43 million. Importantly, none of these deficiencies caused the firm to violate net capital requirements.
FINRA found the firm's supervisory system was not reasonably designed to achieve compliance with the Customer Protection Rule, particularly regarding PAB account calculations. The firm initially had no written supervisory procedures addressing correspondent clearing or PAB reserve obligations and later procedures remained inadequate for detecting calculation errors.
This case illustrates the critical importance of proper customer fund segregation and reserve calculations. While these violations were technical and didn't result in customer losses, they represent significant regulatory compliance failures. Investors should understand that these rules exist to protect customer assets and ensure they remain separate from firm assets. The firm has since corrected its procedures and deposited additional funds to eliminate deficiencies.