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Regulatory Sanctions

B/D Failed to Review the OBAs of its RRs

October 29, 2018

by Howard Haykin


Cetera Financial Specialist, a full-service broker-dealer with over 1,700 registered persons who operated out of 934 branch offices, agreed to pay a $200K fine to settle FINRA charges that it failed to adequately supervise Outside Business Activities (“OBAs”) of its Registered Reps.


FINRA FINDINGS.    Between January 2012 and December 2014 (the "Relevant Period"), the firm failed to establish, maintain and enforce a supervisory system, including WSPs, reasonably designed to consider whether OBAs would interfere with or compromise the Registered Reps’ responsibilities to the firm and/or its customers, and to evaluate the advisability of imposing specific conditions or limitations on such outside activities.


During that 3-year period, a Registered Rep had power of attorney (“POA”) over the accounts of 2 elderly customers – ages 94 and 75 (the latter was son-in-law of the former). The written POAs provided the Registered Rep with broad authority over the 2 customers’ financial affairs, including power to withdraw funds from their accounts. The Registered Rep was also a beneficiary of LZ's estate.


And the Registered Rep disclosed his POA over both customers’ accounts to Cetera Financial - on 3 occasions:


  • In January 2012, an OBA disclosure form reporting that he had been named as POA for the elder customer.
  • In January 2014, an OBA disclosure form reporting that he had been named as POA for the customer’s son-in-law.
    • In both instances, the Registered Rep disclosed that he was providing "assistance with all financial matters including but not limited to taxes, investments, bill paying, bookkeeping and real estate matters," both in accounts at Cetera Financial as well as at other financial institutions.
  • In May 2014, OBA disclosure forms reporting the nature of his activity as being "full power of attorney...responsible for all matters."


In October 2013, Cetera Financial issued a compliance bulletin reminding Registered Reps to disclose their roles as trustees, POAs or executors. In response to that bulletin, the Firm received over 200 disclosures from its brokers, including the two 2014 submissions from the Registered Rep.


WHAT WENT WRONG.    Unfortunately, the firm 'unreasonably' postponed its review of these disclosures for at least 13 months while it re-evaluated its criteria and policies for approving requests to act in a fiduciary capacity for non-family members. And, during this postponement period, the firm failed to conduct timely reviews of the Registered Reps’ outside business activities.


That changed in September 2014 when a mutual fund issuer alerted the firm to questionable transactions in the mutual fund account of the 94-year old customer. This alert prompted Cetera Financial to conduct an internal investigation, which led to the discovery of questionable withdrawals from that customer’s bank account – the Registered Rep had withdrawn at least $75,500, which he used for his own personal benefit.


Cetera Financial U5’d the Registered Rep in December 2014; in April 2015, FINRA barred him from the industry.



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

For details on this case, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2015045233601.