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Regulatory Sanctions

B/D Managing Principal ‘Took a Bullet’ for the Firm Rather Than ‘Bite the Bullet’

April 13, 2018

by Howard Haykin


Here’s a FINRA case in which a managing principal – with an otherwise clean disciplinary record – apparently chose to lie to FINRA examiners rather than “own up to” his firm’s compliance failures. This was one gamble that did not pay off.


The managing principal of a broker-dealer agreed to a $10K fine and a 2-month suspension to settle FINRA charges that he provided FINRA examiners with a fake document that supposedly represented the earlier testing of his firm’s anti-money laundering (“AML”) programs. The individual had no prior regulatory disclosures throughout his 13 years with this firm.


FINRA FINDINGS.    FINRA Rule 3310 requires that member firms develop and implement AML programs that provide for, among other things, periodic independent compliance testing of such programs efficacy. Because the broker-dealer in this case is a 3rd-party marketing firm that does not execute transactions for customers or hold customer accounts, the Firm is required to test its AML program every 2 years.


During a 2017 routine examination, FINRA examiners requested a copy of the 2015 AML test for the broker-dealer. The managing principal, who had temporarily assumed the responsibilities as Chief Compliance Officer (following the departure of the prior CCO), created a document that purported to summarize the Firm's 2015 AML compliance test. It was signed and dated 12/27/15, and claimed that the AML programs had been tested from December 1 through December 31 of 2015.


FINRA examiners, however, concluded that the document was created on or about April 21, 2017.


FINANCIALISH TAKE AWAY.    “20-20 hindsight” is nearly perfect , while “spur of the moment” decisions often are not – in part because attendant risks are not fully considered. While many firms and individuals presumably 'get away' with lying to FINRA examiners, a selected few do not. And for them the penalty can be significant, like a damaged reputation that can potentially block career advancement.


Accept the fact that mistakes and compliance violations happen - in which case it can be prudent to “BITE THE BULLET” rather than to “TAKE THE BULLET.”  


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

For details on this case, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2017054231001.