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- SEC Chair Clayton: Statement on Status of the Consolidated Audit Trail ('CAT')
- Goldman to Launch $5bn Fund with China Investment Corp.
- Wells Fargo Launches Robo-Adviser Targeting Millenial Investors
- Barclays Fails to End U.S. 'Dark Pool' Class Action
- Goldman Sachs' Chief Risk Officer, Craig Broderick, to Retire
- Time to Renew FINRA Registrations - B/D, IA, Agent, IA Rep, Branches
- New Jersey’s Next Governor Could Be a Democrat Who Worked at Goldman Sachs
- FINRA New York Region Networking Seminar - December 1st
- SEC Approves “Pay-to-Play” and Related Rules for Capital Acquisition Brokers
- Hedge Fund Giant Paul Singer Targeted for Destruction by Steve Bannon
- Saudi Arabia's arrest of Prince Alwaleed 'would be like arresting Warren Buffett or Bill Gates' in the US
- Arrest of Billionaire Saudi Prince Touches Sizable Stakes - Citigroup, Twitter, Lyft
- New York Fed President William Dudley set to announce retirement
- FINRA Arbitration Panel Rules Against ex-LPL Broker in $30Mn Lawsuit vs. Firm
- OOPS! Goldman, JPMorgan, BofA Fail in Pricing an IPO
- Former Merrill Broker Pleads Guilty to Fee Fraud, Faces Up To 25 Years
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NEWSLETTERS & ALERTS
FINRA Sanctions for Undisclosed OBA’s and PSTs
by Howard Haykin
Month in, month out, FINRA metes out a slew of punitive fines and suspensions to brokers who were caught engaging in undisclosed outside business activities and private securities transactions. Sometimes, supervisory personnel confuse private securities transactions for outside business activities. More often than not, brokers proceed without bothering to inform (and gain approval from) their broker-dealers.
In any case, I've provided relevant text of the apllicable rules (along with links), as well as brief descriptions of cases that appear in FINRA Disciplinary Actions for June 2017.
How to Use This Information? Why not incorporate this post into the Continuing Education program at your firm or client? Nothing better than to emphasize the downside of violative activities – particularly when the inherent risks are so great – not only to customers, but to firms and brokers.
No registered person may be an employee, independent contractor, sole proprietor, officer, director or partner of another person, or be compensated, or have the reasonable expectation of compensation, from any other person as a result of any business activity outside the scope of the relationship with his or her member firm, unless he or she has provided prior written notice to the member, in such form as specified by the member. Passive investments and activities subject to the requirements of Rule 3280 shall be exempted from this requirement.
FINRA Rule 3280. Private Securities Transactions of an Associated Person.
"Private securities transaction" shall mean any securities transaction outside the regular course or scope of an associated person's employment with a member, including, though not limited to, new offerings of securities which are not registered with the Commission, provided however that transactions subject to the notification requirements of Rule 3210, transactions among immediate family members (as defined in FINRA Rule 5130), for which no associated person receives any selling compensation, and personal transactions in investment company and variable annuity securities, shall be excluded.
No person associated with a member shall participate in any manner in a private securities transaction (PST) except in accordance with the requirements of this Rule. Prior to participating in any PST, an associated person shall provide written notice to the member with which he is associated describing in detail the proposed transaction and the person's proposed role therein and stating whether he has received or may receive selling compensation in connection with the transaction; provided however that, in the case of a series of related transactions in which no selling compensation has been or will be received, an associated person may provide a single written notice.
In the case of a PST in which an associated person has received or may receive selling compensation, a member which has received notice shall advise the associated person in writing stating whether the member: (i) approves the person's participation in the proposed transaction; or, (ii) disapproves the person's participation in the proposed transaction. If the member approves a person's participation in a transaction, the transaction shall be recorded on the books and records of the member and the member shall supervise the person's participation in the transaction as if the transaction were executed on behalf of the member. If the member disapproves a person's participation, the person shall not participate in the transaction in any manner, directly or indirectly.
CASE STUDIES FOR JUNE 2017.
Jay Martin Chapler (AWC #2014042606901) was assessed a deferred fine of $22,500 and suspended 4 months … to settle FINRA charges that he: (i) paid or caused to be paid transaction-based compensation earned by his member firm from disclosed outside business to an unregistered entity; and, (ii) he failed to disclose two outside business activities to the firm – for which he received compensation and reasonably expected to continue receiving compensation from at least one of these businesses.
Leon Edward Dixon (AWC #2016051430401) was assessed a deferred fine of $7,500 and suspended 5 months ... to settle FINRA charges that he participated in private securities transactions without notifying his member firm.
Natalie E. Fogiel Moon (AWC #2015046926801) was assessed a deferred fine of $5,000 and suspended 12 months, and Neal Charles Moon (AWC #2015046926801) was barred from the industry. Their individual settlements settled FINRA charges that they participated in private securities transactions in which customers invested a total of $2.64 million in three different entities, without providing prior written notice to her member firm.
Richard Charles Kuriger IV (AWC #2015046083801) was assessed a deferred fine of $10,000 and suspended 3 months to settle FINRA charges that he failed to provide prior written notice to his member firm of his outside business activities regarding insurance employment and service as an officer for two non-profit organizations. The findings stated that Kuriger also failed to provide prior written notice to his firm of his reasonable expectation of compensation from one of the outside business activities or his actual receipt of compensation.
Eric Eugene Ott (AWC #2016049496201) was assessed a deferred fine of $15,000 and suspended 13 months to settle FINRA charges that, among other things, he failed to disclose his part-ownership and continued involvement in a business that invested in past-due taxes.
Arthur J. Smithee Jr. (AWC #2015044115601) was fined $10,000 and suspended from 3 months to settle FINRA charges that he exceeded the scope of his member firm’s approval to conduct 2 consulting businesses, and he engaged in 2 additional outside business activities that he never disclosed to the firm, including a consulting firm that he managed and a limited liability company (LLC) formed to hold a family member’s house.
David Kimball Stone (AWC #2016049134901) was assessed a deferred fine of $5,000 and suspended from any principal capacity for 2 months to settle FINRA charges that he failed to reasonably supervise the private securities transactions of a registered rep at his member firm.
William Cambell Webb (AWC #2015047061101) was assessed a deferred fine of $15,000 and suspended 18 months to settle FINRA charges that he engaged in outside business activities involving member firm customers without providing prior written notice to the firm, as required. The findings stated that Webb owned and managed outside business activities involving real estate ventures with firm customers and for which he received compensation.