Regal Securities of Glenview, IL, permitted its registered reps to use the firm’s inventory accounts for personal trades.  Lax oversight of transactions in the account, however, enabled one to cheat customers. 

Employees were given access in order to process average pricing in several of their personal accounts, as well as for simple general convenience.  Under this arrangement, any trades placed in the firm’s accounts were to be booked to the employees’ personal accounts by end of the trading day.

Another RR, who was responsible for processing trade orders for the firm’s discount brokerage clients, also had access to the firm’s inventory account.  Unfortunately, he is alleged to have used this access to deprive customers of best executions.  Here's how he did it: 

The RR used the firm investory account to process options trades that the firm's clearing firm executed, based on 3rd-party advisers’ recommendations.  In processing the trades through the firm's prop account, the RR credited customer accounts with prices inferior to the actual street price.  He did this by creating a fictitious transaction to journal a portion of the difference between the street price and the inferior price booked to client accounts from the inventory account to his personal accounts.  All told, he misappropriated $1,305 from firm customers.

Adding "insult to injury," the firm apparently had no supervisory system or procedures (written or otherwise) to detect if employees were engaging in fraudulent activities.  Additionally, FINRA determined that the firm had no way of identifying whether a trade that occurred within the inventory account was a transaction for a customer account or for one of its RR's personal accounts.  This supervisory deficiency was exploited to misappropriate money from the firm’s customers.

        FINRA Sanction.   Regal Securities agreed to a $15K fine.  This is FINRA Case #2010022046701.   [April Disciplinary Actions]