BROWSE BY TOPIC
Stories of Interest
- Sarah ten Siethoff is New Associate Director of SEC Investment Management Rulemaking Office
- Catherine Keating Appointed CEO of BNY Mellon Wealth Management
- Credit Suisse to Pay $47Mn to Resolve DOJ Asia Probe
- SEC Chair Clayton Goes 'Hat in Hand' Before Congress on 2019 Budget Request
- SEC's Opening Remarks to the Elder Justice Coordinating Council
- Massachusetts Jury Convicts CA Attorney of Securities Fraud
- Deutsche Bank Says 3 Senior Investment Bankers to Leave Firm
- World’s Biggest Hedge Fund Reportedly ‘Bearish On Financial Assets’
- SEC Fines Constant Contact, Popular Email Marketer, for Overstating Subscriber Numbers
- SocGen Agrees to Pay $1.3 Billion to End Libya, Libor Probes
- Cryptocurrency Exchange Bitfinex Briefly Halts Trading After Cyber Attack
- SEC Names Valerie Szczepanik Senior Advisor for Digital Assets and Innovation
- SEC Modernizes Delivery of Fund Reports, Seeks Public Feedback on Improving Fund Disclosure
- NYSE Says SEC Plan to Limit Exchange Rebates Would Hurt Investors
- Deutsche Bank faces another challenge with Fed stress test
- Former JPMorgan Broker Files racial discrimination suit against company
- $3.3Mn Winning Bid for Lunch with Warren Buffett
- Julie Erhardt is SEC's New Acting Chief Risk Officer
- Chyhe Becker is SEC's New Acting Chief Economist, Acting Director of Economic and Risk Analysis Division
- Getting a Handle on Virtual Currencies - FINRA
We seek to provide information, insights and direction that may enable the Financial Community to effectively and efficiently operate in a regulatory risk-free environment by curating content from all over the web.
Stay Informed with the latest fanancialish news.
NEWSLETTERS & ALERTS
Broker Gets 18 Months; His Supervisors Get 2 and 3 Months, and Small Fines
[Photo: Horrible Bosses 2, 2014 Movie / onset-hollywood]
by Howard Haykin
‘JA-Senior’ (“Senior”), a General Securities Principal (and presumably a branch manager) with Royal Alliance Associates from 1989 to 2018, agreed to pay a $5K fine and to not serve in any principal capacity for 2 months …
‘JA-Junior’ (“Junior”), a General Securities Principal with Royal Alliance Associates from 2002 to present, agreed to pay a $7.5K fine and to not serve in any principal capacity for 3 months …
… to settle FINRA charges that they failed to reasonably supervise a registered rep, MP, whose unsuitable recommendations to elderly customers resulting in more than $200,000 in trading losses across the customers’ accounts.
‘MP’, a General Securities Rep with Royal Alliance Associates from 2003 to 2015, agreed to serve an 18-month suspension to settle FINRA charges that, among other things, he made unsuitable investment recommendations to 4 elderly, retired customers. In light of [MP’s] financial status, no monetary sanction [was] imposed. [FINRA AWC #2015044939901]
WHAT WENT WRONG. At various times from February 2012 through March 2015 ("Relevant Period"), Senior and Junior failed to reasonably supervise registered rep MP. While Senior had delegated Junior with day-to-day supervision of MP, Senior was ultimately responsible for the supervision of representatives at his branch office.
Registered Rep MP made unsuitable investment recommendations to 4 elderly customers by over-concentrating their accounts in precious metal sector securities and by recommending that they purchase and hold leveraged mutual funds and/or ETFs in their accounts for extended periods of up to 963 days. When one customer complained to MP about the trading in his account, MP responded by making misleading and promissory statements. In addition, MP failed to report other customer complaints that alleged unsuitable trading. Finally, MP misstated a customer's risk tolerance on several Royal Alliance new account forms. MP’s unsuitable trading activity resulted in more than $200,000 in trading losses across the 4 customers' accounts.
Junior failed to reasonably supervise MP by … ignoring red flags, which indicated possible unsuitable trading by MP.
- He received numerous trade alerts regarding securities transactions that MP executed in customer accounts. Instead of independently investigating the suitability of the underlying transactions that were the subject of the trade alerts, Junior relied exclusively on MP’s assurances that the customers understood and accepted the risk associated with the trading activity in their accounts.
- In several instances, Junior identified certain trades that MP made in his customers' accounts that were inconsistent with the customer's stated risk tolerance. Rather than investigate the suitability of the transactions, and without contacting the customers, Junior allowed MP to increase the customer's risk tolerance to match the trading activity.
- Around June 2014, Junior became concerned about the aggressive trading style and the concentration of high-risk securities in MP’s customers' accounts; he elevated those concerns to his supervisor, Senior, and ultimately recommended that Senior terminate MP from Royal Alliance.
- After Senior declined to take any supervisory action against MP, Junior continued to approve MP’s high-risk trading activity in customer accounts - notwithstanding his noted concerns.
Junior also failed to reasonably supervise MP by … failing to review MP’s email correspondence from July 2013 to May 2014, which would have revealed that MP received a customer complaint and alleviated another customer's concerns by making misleading and promissory statements.
- Royal Alliance's automated email review system selected emails for supervisory review based on keyword searches and random sampling.
- Pursuant to the Firm's WSPs, Junior was supposed to review selected emails for such things as customer complaints, promissory language, and other potential sales practice violations.
- Instead of reviewing each of the selected emails as required by the Firm's WSPs, Junior never even opened any of the emails.
- Because Junior failed to review the selected emails, he did not detect an unreported customer complaint against MP or that MP had alleviated another customer's concerns about the trading activity in his account by making misleading and promissory statements.
Senior failed to reasonably supervise MP by … failing to appropriately address concerns elevated to him by Junior regarding MP’s trading activity in customer accounts.
- From June 2014 to March 2015, Senior failed to reasonably supervise MP by failing to address concerns raised to him by Junior regarding MP’s trading activity in customer accounts. After Junior elevated his concerns about MP’s aggressive trading style and the concentration of high-risk securities, and recommended that MP be terminated, Senior basically dismissed Junior’s concerns.
- Senior opted not to conduct any investigation regarding MP’s trading activities or to make a determination about whether the trading was suitable for the customers.
- Senior also refused to take any action against MP, and did not take any action to curtail MP’s unsuitable trading.
- Due to Senior’s failure to respond in a reasonable manner, MP’s unsuitable trading activity continued unabated for several more months until he was terminated for failing to report a customer complaint.
By virtue of the foregoing … Junior and Senior violated NASD Supervision Rule 3010(a) and FINRA Supervision Rule 3110(a).
This case was reported in FINRA Disciplinary Actions for February 2019.
For further details, go to ... FINRA Disciplinary Actions Online, and refer to Case #2015044939902.