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NEWSLETTERS & ALERTS
When a CCO Seems ‘In Over Her Head’ and FINRA Pays a Visit
by Howard Haykin
Melissa Strouse, a Chief Compliance Officer, agreed to a $10K fine, along with a 10-day suspension from serving as a principal, to settle FINRA charges that she failed to establish adequate WSPs for various supervisory functions, and that she failed to carry out her assigned supervisory responsibilities.
BACKGROUND. Strouse, who resides in Cave Creek, AZ, has been associated with First Financial Equity Corporation (FFEC) since March 1999. Ms. Strouse currently is registered as a general securities representative, a general securities principal, an options principal, and an operations professional. At all relevant times, Ms. Strouse was FFEC's Chief Compliance Officer (CCO).
FINRA FINDINGS. For the period, 1/1/10 through 6/23/13, FINRA cited FFEC for numerous supervisory deficiencies. And, since Ms. Strouse was the firm's CCO throughout that period, FINRA held her personally responsible. As CCO, Ms. Strouse not only was responsible for ensuring that the Firm's compliance and supervision systems operated effectively, by she had primary supervisory responsibility for the Firm's main OSJ in Scottsdale, AZ, where a significant number of the Firm's supervisory failures occurred. Furthermore, Ms. Strouse had oversight for discretionary accounts.
Among the deficiencies:
- FFEC's procedures for conducting heightened supervision of registered reps did not detail how surveillance reviews were to be conducted, the frequency of the reviews, and how the reviews were to be evidenced.
- From July 2012 through June 2013, FFEC’s procedures with respect to suitability requirements failed to ensure that requisite customer information was obtained before reps were permitted to recommend securities and/or investment strategies to firm customers.
- While FFEC recommended and sold ETFs - including leveraged and inverse ETFs - to its customers, FFEC did not have any written procedures for the supervision, approval, and sale of ETFs.
- FFEC's procedures for supervising and overseeing discretionary accounts were either not performed or evidenced in writing. Specifically, the designated supervisor was required to:
► Promptly approve, in writing, each order entered for discretionary accounts.
► Review discretionary accounts frequently to detect and prevent activity which may be excessive in size or frequency.
► Conduct monthly reviews of discretionary account statements for potential areas of concern – e.g., churning, excessive trading, suitability issues, or other unusual trading patterns.
FINANCIALISH TAKE-AWAYS. Ms. Strouse was overwhelmed by her responsibilities as Chief Compliance Officer. Perhaps the firm had dumped too many tasks on her - a common lament among CCOs. Or perhaps she wasn’t capable to wearing the many hats she was assigned to wear. And perhaps she never spoke up to call for help.
Whatever the case, FFEC’s supervisory issues were many and too many required procedures were not being performed. That said, it seems that Ms. Strouse got off relatively easy, in terms of sanctions.
As an update to this story, I visited the company web site and found that First Financial Equity Corporation has a new CCO – Randy Sitzman, who’s also the Scottsdale, AZ, Branch Manager. Good luck!
This case was reported in FINRA Disciplinary Actions for May 2017.
For details on this case, go to ... FINRA Disciplinary Actions Online, and refer to Case #2013034966701.