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Regulatory Sanctions

A Firm’s COO Can’t Accept His Failure to Disclose

November 1, 2018

by Howard Haykin


A panel in FINRA’s Office of Hearing Officers (OHO) recently charged a high-ranking individual at Advisors Asset Management with having … (i) failed to disclose to his employer firm 6 outside brokerage accounts; (ii) improperly purchased shares in an equity IPO; and, (iii) giving a false answer on a Client Affirmation Form of Eligibility for IPOs. Based on this violative conduct, the OHO panel ordered the individual to pay a $10K fine, serve a 3-month suspension, and requalify as a registered rep.
                Yet, the fact that this individual appealed OHO’s decision to FINRA’s National Adjudicatory Council (NAC), led me to second-guess my initial, overwhelming support of FINRA’s charges and sanctions. What was I be missing? 
                Well, after reviewing FINRA’s AWC’s and BrokerCheck files, I’ve decided to “go out on a limb” and express my support for FINRA’s decision. I'm also recommending that this individual drop his appeal and get on with his life.



PLAYER PROFILE.    The individual in this case seemingly began his Wall Street career with Merrill Lynch, working serving in an unregistered capacity from 1999 to 2009. Shortly thereafter, he joined Advisors Asset Management as a VP of business development.

  • In 2010, he became registered as a Series 7 (General Securities) Representative, an Investment Banking Representative and a Series 24 (General Securities) Principal.
  • In 2011, he continued his career progression at AAM, becoming an access person*.
  • In 2016, he became the firm’s Chief Operating Officer – with the Finance and AccountingHR, and Compliance departments all reporting to him. 
  • Along the way, he reached the vaulted position of Executive Vice President.
  • [Note:  While AAM continues to employ this individual, the firm U5'd his registrations in July 2018.]


* An access person is a supervised person who … has access to nonpublic information about clients’ purchases and sales of securities; is involved in making securities recommendations to clients; or has access to securities recommendations.


TIMETABLE OF BROKERAGE ACCOUNT ACTIVITY.    Before joining AAM … the individual and his wife had 4 brokerage accounts at Merrill Lynch – on ML’s self-directed platform. The broker (knew he) had beneficial interest in each one.

  • a joint cash management account in the names of the broker and his wife;
  • a traditional IRA account in the broker’s name;
  • a rollover IRA account in the broker’s name; and,
  • a rollover IRA account in the name of the broker’s wife.


Upon joining AAM in 2009 … the individual completed an Outside Brokerage Account Disclosure Form, disclosing just one of his 4 Merrill Lynch accounts. In testimony, the individual said “he mistakenly thought disclosure of the joint cash management account would automatically result in disclosure of the other accounts.” To complicate matters, AAM’s Compliance Department inadvertently never sent a letter to Merrill Lynch requesting delivery of duplicate confirms and statements. The individual never followed up on the duplicate mailing arrangements.


In April 2010 … the individual and his wife opened 4 new outside brokerage accounts – this time on Merrill Lynch’s full-service brokerage platform. Sometime later, the couple transferred all of their investment funds from the self-directed accounts to the newer, full-service accounts. The individual did not disclose 3 of the 4 new accounts to AAM, noting in testimony that “he mistakenly thought disclosure was not necessary. He explained that the accounts were not new accounts, but instead were only the result of an internal transfer within Merrill Lynch that did no more than change the accounts from self-directed accounts to full-service accounts.”


In November 2010 … the individual bought 200 shares of the IPO offered by LPL Investment Holdings at $30 per share. He purchased the shares through his rollover IRA account. Upon informing AAM’s Chief Compliance Officer that he had purchased shares in an IPO, the Chief Compliance Officer directed him to sell the shares and donate any profit to charity.



FINANCIALISH TAKE AWAYS.    I was tempted to give this individual some "wiggle room" with the explanation that "he mistakenly thought disclosure of the joint cash management account would automatically result in disclosure of the other accounts.” But too many facts and circumstances just didn't add up.


  • With at least 10 years' experience on Wall Street, and then starting out as a VP with Advisors Asset Management (AAM), this individual knew - or should have known - his disclosure obligations.
  • Then, as he moved up the organization chart at AAM, his obligation to conduct himself in a fully compliant manner became more critical - particularly when he became the direct report for the firm's compliance department.
  • As FINRA notes, it was the ultimate responsibility of this individual to ensure that duplicate mailings of confirms and statements were made. Yet, he never made the effort to confirm the arrangement.
  • This individual knew, or should have known, that it was wrong for him to invest in IPOs - given his industry status as a restricted person.
  • This individual 'conveniently' never informed his former employer, Merrill Lynch, that he was associated with a FINRA member firm. This precluded Merrill from notifying AAM to ask if it sought copies of his numerous brokerage accounts. And it precluded both Merrill and AAM from preventing this individual's participation in the IPO [notwithstanding the fact that he notified AAM Compliance of his purchase after the fact.]


In conclusion, this individual got what he deserved - or perhaps deserved greater sanctions. Accordingly, he should: (i) ACCEPT HIS FAILURES;  DROP HIS APPEAL; and, (iii) GET ON WITH HIS LIFE. 



Thise case was reported in FINRA Disciplinary Actions for September 2018.

For details on either case, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2016049085401.