BROWSE BY TOPIC
Stories of Interest
- Stephen Hicks Barred for Defrauding His CT Hedge Funds - SEC
- Barclays CEO Staley Sees Pay Decline - Frankly, He's Lucky to Still be Employed
- Barclays Female Investment Bankers Earn 21% Less in Bonuses than Male Counterparts
- FINRA Eliminates $400 Fee for Explained Arbitration Decision
- SEC Adopts Statement and Interpretive Guidance on Public Company Cybersecurity Disclosures
- SEC Charges Former Bitcoin Exchange and Its Founder With Fraud
- JPMorgan Chase to Replace NYC Headquarters with 70-Story Skyscraper
- Citigroup Raises CEO Corbat's Pay 48% to $23Mn
- Should Congress Create a Crypto-Cop?
- JPMorgan Weighs Buying an Exchange-Traded Funds Firm
- Hey, Goldman Sachs: Wanna Buy BNY Mellon?
- SEC Order Rejecting Acquisition of Chicago Stock Exchange (CSX) by Chinese-Baesd Company
- Kyle Moffatt Named Chief Accountant in SEC CorpFinance
- SEC Suspends Trading in 3 Issuers Claiming Involvement in Cryptocurrency and Blockchain Technology
- Karen Garnett, Assoc. Director of SEC CorpFinance, to Leave After 23 Years of Service
- Louisiana Adviser Barred for Hiding Losses from Investors
- Connecticut HF Manager Illegally Diverted Investor Money - Now Owes Nearly $13Mn
- White House Cleaning House of Advisors Without Full Security Clearance
- Goldman Projects 30% Growth in Wealth Management Advisor Force
- Whistleblower Alleges Manipulation of CBOE Volatility Index
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
FINRA Gets It Wrong in Undue Concentration Case
by Howard Haykin
Geraldine Gordon agreed to a $7.5K fine and a 10-day suspension to settle FINRA charges that she recommended that a customer liquidate invest half of her liquid net worth in a single Master Limited Partnership.
BACKGROUND. Gordon, a resident of Lexington, KY, has been registered since May 1994 – serving throughout her brokerage career as a General. Securities Rep with Ameriprise Financial Services. She had no formal disciplinary history.
FINRA FINDINGS. In June 2013, Gordon recommended that her customer, “WF,” liquidate a number of diversified investments in her Ameriprise brokerage and IRA accounts, which comprised approximately half of her liquid net worth. Gordon then recommended that WF use the $334,000 in proceeds to purchase a single Master Limited Partnership focused on the energy sector. The MLP prospectus described the investment as speculative.
According to FINRA, Gordon's recommendations were unsuitable in light of the customer's financial condition, and because the investment represented an undue concentration of the customer's net worth.
FINANCIALISH TAKE AWAY. Welcome back to another lesson in “WHERE’S THE SUPERVISION?” A customer is directed to invest half her liquid net worth in a Master Limited Partnership, or MLP, which FINRA describes as “speculative” – in part because there’s a limited secondary market - and yet, there's no mention about a lack of oversight or supervision.
While it's appropriate for customers to view their brokers as a first line of defense against 'wayward' or unsuitable investments - with or without the fiduciary standard - the broker-dealer is undeniably a viable second line of defense.
So where's the logic in this case, where the broker gets a slap on the wrist, while Ameriprise and its supervisory personnel get … no sanctions? As such, I’ve got 2 problems with the 'verdict' in this case:
- A $7.5K fine and a 10-day suspension sounds too light on 2 counts: (i) Gordon probably earned a hefty commission on the liquating and purchase transactions; and, (ii) If the MLP was as speculative and unsuitable as FINRA makes it out to be, then a larger and more punitive fine and suspension would have been in order.
- Undue concentrations are easy to monitor and detect. So why wasn’t it picked up by Ameriprise Compliance? And if Ameriprise didn’t investigate the transactions to establish the customer’s comfort levels – which is probably the case because FINRA only issued sanctions against the broker – then why were the firm and Compliance personnel not sanctioned, as well?
Something smells with FINRA’s handling of this case, and it’s not pleasant.
This case was reported in FINRA Disciplinary Actions for August 2017.
For details on this case, go to ... FINRA Disciplinary Actions Online, and refer to Case #2016049353501.