An Oakdale, MN, broker-dealer, in business since 1968, agreed to settle FINRA charges it lacked effective supervisory policies and procedures for monitoring excessive trading in equity securities - i.e., churning.  The period in question was between January 2008 and May 2009. While Woodbury Financial Services' WSPs required equity trades to be reviewed for appropriateness of  commissions, excessive trading and suitability where trades were solicited, the firm primarily relied upon its trade desk to identify excessive trading by reviewing the firm’s daily trade commission report. Only problem was that the trade report lacked the basic information necessary to review for excessive trading - i.e., (i) number of shares purchased or sold;  (ii) total cost of the transaction;  (iii) account name;  (iv) account holder’s age; (v) investment experience;   or, (vi) risk tolerance. About The Firm. Woodbury has been a FINRA member broker-dealer since 1968.   It maintains its principal place of business in Woodbury, MN, and has branch offices throughout the United States. Woodbury engages in a general securities business that includes retail brokerage services and trading and advisory services, however, its principal business is in mutual funds, life insurance and annuities. Exception reports would have helped, ... but the firm didn't utilize any exception reports or systems that delineated the average holding periods, commission-versus-equity ratio or the turnover ratio in customer accounts.  As a result, the firm never established or maintained an adequate system of reviewing and following-up when confronted with potential excessive (and unsuitable) equity trades. What The Firm Appeared to Do Right, Until .... The firm did, however, identify unusual trading activity in a customer’s account ("Customer #1") - on 1/27/09, by a Firm Brokerage Operations staff member, who noted that the customer account was handled by a Registered Rep, Michael Vieane. The Firm staff member brought the matter to the attention of the Trade Desk Manager, who reviewed the activity and forwarded the matter  to Compliance.  The Trade Desk Manager also reviewed the trade activity in other accounts assigned to RR Vieane and found similar trading activity in 2 more customer accounts "(Customers 2 and 3").  These findings were also referred to Compliance in January 2009. After speaking with Customer #1, the firm determined that the RR had engaged in discretionary trading without written authorization - in violation of the firm’s pols and procedures.  And so, on 5/8/09, the firm terminated the RR Vieane's registration for failing to cooperate with the firm’s investigation. However, although the firm identified unusual trading activity in the accounts of Customers 2 and 3, the firm did not investigate further or immediately contact these customers. During April 2010, over a year after the firm initially contacted Customer #1, and after FINRA sent the firm a Rule 8210 request, the firm reviewed Customer #2's account activity and preliminarily concluded that RR Vieane had excessively traded Customer #2's account, as well, based on a turnover calculation - the T/O ratios for Customer #2 was 5.38 in 2008, and 4.38 in 2009, and the annual cost to equity ratio was 23.90% in 2008 and 61.48% in 2009.  In addition, certain trades were entered by Vieane on a discretionary basis, even though he had not received authorization to do so. Still, the firm did not follow up on this unusual trading activity until it received a Rule 8210 request from FINRA staff. FINRA Sanctions. Woodbury Financial agreed to a $45K fine without admitting or denying the findings, for having allegedly violated NASD Rules 3010 and 2110 and FINRA Rule 2010.

[C-I Note: It remains somewhat mind-boggling that an established firm, with a Compliance Department, should have been so lax in drilling down to investigate probable violative activities.  Without having the identities of supervisory personnel at Woodbury, it's virtually impossible for us to ascertain whether any individual sanctions were handed out by FINRA in this matter - but there is little doubt such sanctions were in order.]

For further details, go to:  [FINRA AWC #2009018045802]   [FINRA Disciplinary Actions for March 2012]