BROWSE BY TOPIC
Stories of Interest
- Credit Suisse Fully Compliant on Sanctions: CEO
- Ex-UBS Metals Trader Beats Spoofing Conspiracy Charge
- Investment Advisor, WCAS Management Corp, To Pay Nearly $800K Over Conflicts of Interest
- Altaba, fka Yahoo!, to Pay $35Mn for Failing to Disclose Massive Cybersecurity Breach - SEC
- SEC Formerly Bars Martin Shkreli from Industry
- HF Billionaire Steve Cohen Buying Into Fintech Start-Ups
- Deutsche Bank Is Weighing Massive Cuts in Its U.S. Cash Equities Unit
- Richard Jenrette, Co-Founder of DLJ Investment Bank, Dies at 89
- Goldman Sachs Makes First Hire in Cryptocurrency Markets Unit
- Special FINRA Election to Fill Large Firm Governor Vacancy
- Chicago-Based Investment Adviser Sentenced to 151 Months in Prison - SEC
- Dun & Bradstreet Hit With FCPA Violations - SEC
- SEC Charges Additional Defendant in Fraudulent ICO Scheme
- Warren Buffett Simply Blew it on Wells Fargo Stock: Dick Bove (Video)
- Barclays and Deutsche Bank to Lag U.S. Trading Peers
- NY AG Schneiderman Seeks to Close Loophole That Could Let Trump Pardons Block State Charges
- 'Fearless Girl' is Moving to NYSE After Year Staring Down 'Charging Bull'
- What's In Your Wallet - American Express Shares Soar After Earnings Release
- Deutsche Bank's Executive Departures Continue Following Change in CEO
- Reflections of an Economist Commissioner (SEC's Piwowar)
We seek to provide information, insights and direction that may enable the Financial Community to effectively and efficiently operate in a regulatory risk-free environment by curating content from all over the web.
Stay Informed with the latest fanancialish news.
NEWSLETTERS & ALERTS
Beverly Hills Broker-Dealer Fined $250K Following Years of Lax Oversight – Part One
by Howard Haykin
City National Securities agreed to pay a $250K fine to settle FINRA charges that it failed to supervise certain of its registered reps to ensure their compliance with FINRA rules relating to outside business activities, private securities transactions and outside accounts.
$250,000!? How did FINRA come up with such a large fine against a broker-dealer with just 162 brokers – even one that’s domiciled in Beverly Hills? And for the firm’s failure to supervise outside business activities (“OBAs”), private securities transactions (“PSTs”), and Outside Brokerage Accounts (“OAs”)? Unheard of - $250,000!
Welcome to the cautionary tale of FINRA Case #2014043089901.
BACKGROUND. City National Securities, based in Beverly Hills, CA, has been a FINRA member since 1999. The firm is a general securities broker dealer with 162 registered reps and 4 non-registered individuals. One hundred fifty-nine (159) of its registered reps are dually-registered as investment adviser reps. City National engages in fixed income securities trading and offers investment advisory services through an affiliated registered investment advisor ("affiliated RIA"). City National Bank is its parent company and sole shareholder.
WHERE THINGS WENT WRONG FOR CITY NATIONAL. From January 2008 through September 2014 (the 'Relevant Period"), City National failed to adequately supervise certain of its registered reps pertaining to OBAs, PSTs, and OAs. Where did City National go wrong?
1.) Supervision of Outside Business Activities. While City National’s WSPs required its employees to disclose ''any and all outside business activities," here's where the firm ran afoul with NASD Rule 3030, its successor, FINRA Rule 3270, and Supplementary Material to Rule 3270:
- Its WSPs failed to include any procedures about how and to whom OBA requests should be submitted for review and evaluation;
- its WSPs failed to reflect the requirements of the Supplemental Material of FINRA Rule 3270; and,
- at least one of its OSJ managers didn’t have a clue as to how to evaluate or who at the firm was responsible for evaluating OBAs.
2.) Supervision of Private Securities Transactions. While City National’s WSPs reminded associated persons that "[i]t is a serious violation of FINRA rules for a Registered Rep to sell a security other than through the firm with which they are registered," here's where the firm ran afoul with NASD Rule 3040 and its successor, FINRA Rule 3280:
- its WSPs focused only on PSTs involving City National customers;
- its WSPs did not address PSTs involving non-City National customers, even though the firm’s dually-registered reps had RIA customers who were not also brokerage customers.
3.) Supervision of Outside Brokerage Accounts. While City National’s WSPs stated that OAs would be approved by the President of City National Securities "on an exception basis only" and that such accounts, if approved, must provide account statements and confirmations to be reviewed by the CCO, here's where the firm ran afoul with NASD Rule 3050 and its successor, FINRA Rule 3210:
- its WSPs failed to address other aspects of compliance with FINRA Rule 3050, including: (i) that a rep must provide written disclosure to the firm prior to opening an account, placing an initial order, or promptly after becoming associated with City National; and, (ii) that a rep must also disclose his or her association with City National to the outside brokerage firm.
This case was reported in FINRA Disciplinary Actions for October 2017.
For details on this case, go to ... FINRA Disciplinary Actions Online, and refer to Case #2014043089901.