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Regulatory Sanctions

Another Registered Principal Gets Dinged, Takes Reputational Hit Over Private Securities Transactions

July 13, 2017

David Stone agreed to pay a $5K fine and serve a 2-month suspension as a principal to settle FINRA charges that he failed to reasonably supervise the private securities transactions of a registered rep at his member firm.


BACKGROUND.    Stone, a resident of Acton, MA, entered the industry in 1996, took a break in 1998, and returned in August 2007 when he became registered as a General Securities Rep, General Securities Principal and Introducing Broker-Dealer FinOps Principal through Liberty Tree Advisors. He in a supervisory role with that firm until January 2017, and currently is not associated with a FINRA member firm.


FINRA FINDINGS.    From May 2015 to January 2016, Stone failed to reasonably supervise the private securities transactions (PSTs) of one of the firm’s registered reps. That registered rep and 2 partners created a fund to raise capital for investment in commercial and industrial real estate associated with the legal cannabis industry in Colorado (the fund). Stone discussed the fund with the rep and was aware that the rep was seeking to raise capital through the sale of limited partnership interests in the fund. Despite this awareness, Stone misconstrued the rep’s sale of interests in the fund as an “Outside Business Activity” – and not as PSTs that required his supervision.


And so, when the rep raised approximately $1.4 million in investments in the fund from 7 investors, Stone did not supervise the rep’s transactions, and the sales were not recorded on the firm’s books and records.


FINANCIALISH TAKE AWAY.  Once again, s registered principal doesn’t know the difference between OBAs and PSTs, and pays the price – with a fine, a suspension, and a hit to his reputation.


Rather than belabor the point, I’m just going to refer readers to our 6/28/17 posting, FINRA Sanctions for Undisclosed OBAs and PSTs, which lays out the rules governing “outside business activities” and “private securities transactions.”


This case was reported in FINRA Disciplinary Actions for June 2017.

For details on this case, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2016049134901.