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- Financial Adviser Settles Charges for Defrauding Private Equity Fund Investors
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Allstate Financial Services Pays $1Mn to Settle FINRA Charges
FINRA Disciplinary Actions for February: AWC #2015047806501.
Allstate Financial Services, of Lincoln, NE, (Allstate) agreed to a $1 million fine to settle FINRA charges that it failed to supervise certain communications and transactions, retain certain records, and provide customers with certain required notices and information. The issues were largely attributed to 5 systemic problems, some of which lasted as long as 15 years.
Allstate is a retail broker that’s been registered since 1986. As of 11/3016, the firm had 7,411 branches and 8,865 registered persons.
The following are principal issues actions noted in this case:
FINRA FINDINGS RE: EMAIL REVIEWS. The firm omitted some 3,500 secondary email accounts from the list of email accounts to be monitored. As a result:
- Approximately 44 million emails were never reviewed - included about 11,000 emails with customers or otherwise relating to the firm’s securities business.
- For obvious reasons, those business-related emails were never retained.
- The firm didn’t have adequate safeguards to ensure that its software system captured every relevant email.
FINRA FINDINGS RE: CONSOLIDATED REPORTS SENT TO CUSTOMERS. Registered reps were permitted to create consolidated reports that they provided to customers. While the firm generally required its registered persons to retain copies of retail communications, it did not adequately instruct its registered persons that its retention policy applied to consolidated reports. As a result:
- The Firm retained very few of the consolidated reports that its registered reps distributed to customers.
FINRA FINDINGS RE: CUSTOMERS HOLDING MUTUAL FUNDS AND VARIABLE ANNUITIES. Firm records for these customers were missing or incomplete, and those accounts were not linked to the firm’s software system that generated various notices. As a result:
- The firm didn’t verify the identity of certain of those accounts’ owners.
- The firm didn’t determine whether recommendations were suitable for those customers.
- The firm didn’t send required periodic account records and notices explaining the firm’s privacy policies to those customers.
- One reason for the problem was that registered persons submitted some of the accounts directly to product sponsors, bypassing the firm’s systems – which violated a firm policy that was inconsistently enforced.
- Another reason was accounts being transferred in from other firms were not properly documented.