[ by Howard Haykin ]

Fashion Weeks in New York and Paris have come and gone, so it's time to get back to business as usual.  But FINRA's not letting us down.  They've got a hot number for this fall season - of course we're talking about the Quarterly Disciplinary Review for October 2012.  I know how you feel - I too feel the temperature rising.

Anyway, FINRA kicks off the Q3 review of recent actions involving misconduct by registered representatives with this much-discussed topic - Sharing Commissions With an Unregistered Individual and Providing False Information to Firm.  Let's get right into it.

FINRA settled a matter involving a registered representative ("RR") who allegedly shared commissions with an unregistered person who operated a business out of the same office space, and he misled his member firm as to whether any other businesses operated out of the branch office location.  In prior years, the unregistered individual had been associated with a member firm and had worked with this RR.  Currently, he attempted to associate with the RR's firm, but couldn't be of his disciplinary history. 

In any event, the unregistered person managed to enter into a working relationship with the RR that lasted about 16 months.  During that time, the unregistered person conducted research and provided stock recommendations that the RR passed along to his own customers.  In exchange for the recommendations, the RR paid the unregistered person about 40% of his brokerage commissions, totaling some $255,000.  At no point did the RR disclose his arrangement with the unregistered person.   FINRA deems such conduct to be a violation of NASD Rule 2420, Dealing with Non-Members, and FINRA Rule 2010, Ethical Standards. 

To make matters worse, the RR submitted a false and misleading compliance questionnaire to his member firm, denying that any other businesses were located in the branch office when, in fact, the unregistered individual operated his business out of the same office.  He signed and submitted questionnaire to his the member firm, which had the effect of causing the firm’s books and records to be incorrect.  And, don't forget that the RR concealed his working relationship with a person whom the firm had chosen hot to associate with - and yet, that individual was working out of the same office space. 

[C-I Note: It's not explained who arranged for the unregistered person to work in the firm's premises or whether the firm knew that the unregistered person was sharing that space.] 

These additional facts led FINRA to conclude that the RR's alleged actions would violate NASD Conduct Rule 3110, Books and Records, and FINRA Rule 2010, Ethical Standards.  In light of these alleged violations, the RR settled FINRA's charges and agreed to a $20K fine and a one-year suspension in all capacities.

To continue reading other cases, go to:  [FINRA Quarterly Disciplinary Review, October 2012].