Incident Reveals Firm's Inadequate WSPs and Supervisory & Internal Control Practices.

[ by Howard Haykin ]

A Stamford, CT-based firm agreed to settle FINRA charges that committed widespread net capital and books and records violations that, in large part, arose out of its relationship with an outside accountant who maintained the firm's principal books of entry - e.g., general ledger, trial balance.

Profile of Respondent.    Access Securities, LLC is an institutional execution firm that has been a FINRA member since 1988.  At the time of the exam in 2010, the Firm employed 54 RRs and maintained 3 branch offices.  The Firm is approved to execute corporate debt and equity transactions, foreign equity securities, government securities, municipal securities, options, convertible arbitrage, futures, institutional execution services and private placements. Additionally, the Firm engages in proprietary trading and acts as an underwriter or selling group participant.

FINRA Findings and Allegations.   Based on examination findings, Access allegedly committed the following violations for the periods noted:

In March and April 2010.   Conducted a securities business while failing to maintain its required minimum net capital. 
Such deficiencies would violate Section 15(c) of the Securities Exchange Act of 1934 ("Exchange Act"), Exchange Act Rule 15c3-l and FINRA Rule 2010.

Between January and August 2010.  Access failed to:

• preserve a general ledger("G/L") and trial balance ("T/B");
• make and keep accurate G/L's;
• prepare accurate net capital computations;
• maintain records of all compensation arrangements or plans with certain associated persons;
• timely notify the SEC and FINRA when Firm failed to make and keep current certain books and records;
• file accurate FOCUS Reports - i.e., they were inaccurate.

Such deficiencies would violate: Exchange Act Section 17(a); Exchange Act Rules 17a-4,17a-3(a)(2), 17a-3(a)(l 1), 17a-3(a)(19)(ii), 17a-5, and 17a-l 1(d); NASD Rule 3010(a), 3010(b) and 3110(a); and FINRA Rule 2010.

Between January and August 2010.  Access further failed to: 

• establish and maintain a supervisory system;
• establish, maintain and enforce adequate WSPs pertaining to preparation and maintenance of its financial books and records, and its supervision of the Firm's outside accountant.

Such deficiencies would violate NASD Rules 3010(a) and (b); and FINRA Rule 2010.

What Caused the Widespread Deficiencies.   Firm used an outside accountant to prepare its G/L and T/B, which she maintained on her personal laptop and home computer.   Thereafter, ...

• firm’s G/L for a particular period became corrupt and the firm’s data was lost. 
• neither firm nor accountant backed-up the computer files;
• neither firm nor accountant maintained a complete hard copy of the G/L.

Moreover, FINRA determined that the firm failed to timely notify the SEC and FINRA, in accordance with Exchange Act Rule 17a-11(d) when it discovered that it failed to make and keep current certain books and records, including ledgers for a certain period.

As a result, firm's books and records were neither current nor accurate, meaning its G/L's were materially inaccurate.  During this time period, the firm's net firm capital balance came to be overstated, so that it committed further violations when it used the mails or other means or instrumentalities of interstate commerce to effect transactions in securities, while failing to maintain its required minimum net capital. 
 

Additional Books and Records Violations.   Firm failed to make and keep current all records of agreements pertaining to its relationship with and between certain associated persons, including a summary of each associated person’s compensation arrangement or plan with the firm. This included any written agreements reflecting its compensation arrangement or plan with certain traders.

It was further found that firm failed to establish and maintain a supervisory system and to establish, maintain and enforce WSPs reasonably designed to achieve compliance with the requirements of FINRA rules and the federal securities laws regarding the preparation and maintenance of its financial books and records, and its supervision of its outside accountant. Furthermore, FINRA found that the firm failed to establish and maintain a supervisory system to ensure the timely posting to the general ledger, the maintenance of the general ledger, and the accuracy of its net capital computations and FOCUS Report filings. The findings also stated that the firm’s WSPs were also deficient, in that the procedures did not reflect the division of responsibility between the financial and operations principal (FINOP) and the outside accountant as it related to the posting of entries and maintenance of its financial books and records.
 

FINRA Financial Sanctions.   Access Securities, LLC settled with FINRA by agreeing to pay a $30K fine.

For further details, go to:   [FINRA AWC #2010020866001] .      This case is presented in [Disciplinary Actions for January].