A White Plains, NY, firm paid a 6-digit fine to settle FINRA charges that it committed numerous violations related to, among other things, financial reporting, anti-money laundering and communications with the public. FINRA Findings re: Financial Reporting. FINRA alleged that Clark Dodge & Co. conducted a securities business while failing to meet its minimum net capital requirements and, as a consequence, filed inaccurate FOCUS Reports.  Apparently, the firm failed to accurately calculate its net capital when it used an improper statutory minimum net capital requirement in its calculations.  The firm further failed to give notification to either the SEC or FINRA that its total net capital was less than 120% of the required minimum net capital. FINRA Findings re: AML and Bank Secrecy Act. The firm allegedly failed to effectively implement its Customer Identification Program (CIP) as required under the Bank Secrecy Act (BSA) regulations.  This resulted in the firm failing to obtain, verify and maintain required CIP records and documents for customer accounts that were opened at the firm for almost a year - for some of the accounts, the firm did not have photo or non-documentary verification.

FINRA also found that the firm failed to conduct an independent test of its AML program one year and conducted a less-than-adequate independent test in another year.  FINRA deemed the AML test to be inadequate because it only included a review of the main office’s compliance with AML procedures - i.e., it did not include a review of activity at the firm’s branches, especially its largest revenue-producing branches.

FINRA found that the independent tester, instead, relied on assurances from the firm’s AMLCO that AML procedures were followed at the other branches.  The tester's 2-page summary of the AML test he conducted for that one year was also too general in terms of its scope.  The inadequate or missed testings occurred even though the firm's WPS's provided for annual independent AML testing.  It simply failed to implement or observe those procedures.

[C-I Take Away: Keep in mind that, FINRA rules pertaining to WSPs are comprehensive, but straightforward.   Simply stated, a firm must do everything - i.e., perform all supervisory control procedures - that are mentioned in the WSPs.  Conversely, the WSPs must accurately reflect and include all supervisory control procedures that principals of the firm actually perform when supervising their designated areas.  Put another way, the WSPs must memorialize a firm's supervisory practices to a "T."

If there are any differences between what's written and what's actually done, then the firm is in violation.  FINRA even cites firms for having superfluous supervisory procedures in its WSPs - i.e., covering business areas the firm may have been involved with at some point in the past, but does not engage in such business activities in the present.  An examiner can be a stickler and push for a fine.  That's when you have to control yourself from doing something you may later regret.]

FINRA Findings re: Communications with the Public. The firm did not have a written policy or procedures for maintaining a Do-Not-Call list, as required by provisions of the national DNC Registry.  It also failed to comply with the prohibition against telephone solicitation of persons registered with the DNC Registry - in that firm employees made calls to telephone numbers registered with the DNC Registry.  Apparently the firm had such procedures in its WSPs, because FINRA found that the firm did not effectively implement its written procedures to ensure compliance with its do-not-call obligations and failed to maintain its own firm-specific do-not-call list.

[C-I Note: It's likely the firm bought a manual from a service bureau or consultant and never really understood what it was supposed to do.]

A related shortcoming was that firm branch managers were maintaining lists that were only specific to their branch offices.  [C-I Note: As if Clark Dodge should not bother to maintain one firm-wide list.] The firm apparently failed to properly carry out its supervisory responsibility for a website that one of its RRs maintained.  The site related to the RR's an approved outside business activities - investment banking.  So, the firm was aware of it, but didn't bother to review or monitor its contents. FINRA Findings re: Commission Payouts. Finally, the firm allowed RR employed at its Offices of Supervisory Jurisdiction (OSJs), to be paid their commissions through unregistered entities, rather than their taking payment directly. FINRA Sanctions. Clark Dodge was fined $100,000.   For further details, go to:   [FINRA AWC #2008011692601].   [Disciplinary Action for October 2011.]