New York-based Portfolio Advisors Alliance and one of its Registered Principals - Marcelle Long - settled FINRA charges that they failed to put adequately supervise a branch office manager ("BOM") who had very serious issues.  Fact is, the branch manager should have been placed under heightened supervision, but wasn't.  Nor did the firm or the registered principal follow up on "red flags." 

[C-I Note:  Given the issues related to this BOM, it's questionable as to why the individual was retained as a branch manager.]

Among the BOM problems or issues:  (i) his remote location;  (ii) prior disciplinary history;  (iii) outside business disclosures;  (iv) his disclosure that he was potentially under financial stress and unable to meet financial obligations.

For each such issue that the BOM disclosed on a compliance questionnaire - i.e., an affirmative answer - Principal Marcelle Long was required to attach a separate sheet providing complete details about the disclosed activities - but she did not complete or enforce this step.  And while "heightened supervision" of the BOM branch manager supposedly was implemented, it apparently consisted only of inspecting the BOM's office annually and speaking on the phone fairly regularly.

FINRA found that Ms. Long inspected the branch manager’s branch office, and although she was aware that the manager was involved in certain outside business activities - based on the disclosures he made on his Form U4, Ms. Long admitted that she didn't inspect any files or financial records associated with his disclosed outside business activities and didn't detect any undisclosed outside business activities or private securities transactions.

In a subsequent inspection, FINRA found, once again, that Ms. Long had not reviewed documentation re: the BOM's disclosed outside business activities and did not detect any undisclosed outside business activities or private securities transactions.  FINRA also found that the branch manager had participated in private securities transactions wherein he had raised over $1.5 million from investors - many of whom
were firm customers. 

In addition, the firm and Ms. Long failed to review or retain email communications on the branch manager’s outside email account, and Ms. Long did not review the BOM's outside email account during her inspections of his branch office.  Moreover, the firm didn't even have supervisory procedures regarding the review and retention of email communications on outside email accounts.

Disciplinary Action.   The firm was fined $35K, and Long was fined $7.5K and received a 30-day suspension as principal.  This is FINRA Case #2008011640602.   [Disciplinary Actions for June 2011]