A New York broker-dealer agreed to settle FINRA charges that it conducted an inadequate investigation into the activities of registered reps who may have been somehow involved with a Ponzi scheme.  The firm further had issues with its investigation into allegations made by 2 of its reps. FINRA Findings and Allegations. Park Avenue Securities LLC allegedly became aware that 2 of its registered representatives ("RRs") had participated in unapproved private securities transactions - facilitating investments in the Ponzi scheme for themselves, firm customers, and others - without notifying the firm or obtaining its permission. Park Avenue investigated the RRs' conduct and sought to determine whether any other RRs were involved in the Ponzi scheme.  The firm used a questionnaire to solicit information from RRs in 2 states about any involvement they may have had in the Ponzi scheme.  Here are some of the deficiencies in the firm's investigation, as noted by FINRA:

Issue One. Notwithstanding the statements made by the 2 RRs - that one of the firm’s insurance supervisors knew about their involvement with the Ponzi scheme - the insurance supervisor was permitted to collect questionnaire responses from the firm's RRs.

Issue Two. The  firm never fully investigated how deeply the insurance supervisor’s was involved in or with the Ponzi scheme - even though evidence was later discovered that should have led the firm to conclude that he was involved.

Issue Three. The firm was told by counsel for the 2 RRs that one of the firm’s supervisors had suggested that the RRs destroy documents and provide misleading information in connection with the firm’s internal investigation.  The firm took inadequate steps to investigate these allegations.

On a separate note ... Park Avenue was found to have an inadequate system for reviewing e-communications, in that its computer system allowed compliance staff in branch offices, in certain circumstances, to review their own email as well as the email of their supervisors. FINRA Sanctions. Park Avenue Securities agreed to a $175K fine.     [Disciplinary Action for January 2012]. For further details, go to:   [FINRA AWC #2009016911203].