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-Dealer Overpaid Customers' Third-Party Advisors
by Howard Haykin
From 2008 through April 2017 (the "Relevant Period"), MBSC Securities Corporation (“MBSC”) serviced approximately 17,000 retail customer accounts, of which more than 100 had established relationships with two 3rd party investment advisors (the “RIAs”).
While MBSC generally prohibited wire transfers from customer accounts to 3rd parties, the firm made an exception with these 100 customer accounts, who had: (i) opened an MBSC account in his or her own name; (ii) executed trading authorizations granting authority to the respective RIAs to trade securities in the account; and, (iii) provided MBSC copies of their management agreements with the RIAs, which authorized management fee charges from the customers' accounts in accordance with a fee schedule agreed to by each customer.
WHAT WENT WRONG. The 2 RIAs routinely submitted requests for the payment of management fees that exceeded the amounts to which they were entitled under the Management Agreements and fee schedules - which MBSC processed without any review or verification.
In addition, MBSC continued to accept and process the submitted disbursement requests from one of the RIAs even though, in September 2016, that RIA became subject to a consent order issued by its state regulator prohibiting the RIA from engaging in registered advisory activities. By April, MBSC learned of the prohibition and stopped making payments in April 2017.
In April 2017, MBSC took these further actions: (i) immediately suspended all trading activity in the accounts managed by that RIA; (ii) reviewed all the advisory fees paid to that RIA and discovered the over-payments; (iii) self-reported its findings to FINRA; and, (iv) conducted a further review and determined overpayments to the other RIA, as well.
All told, MBSC disbursed $971,000 in excessive fees from accounts of approximately 75 customers to the two 3rd-party RIAs .
CONSEQUENCES OF MBSC’S ERRORS. FINRA determined that MBSC had violated its rules governing … (i) Supervision [NASD Rule 3010 and FINRA Rule 3110]; and and, (ii) Supervisory Control System - Internal Inspections [NASD Rule 3012 and FINRA Rule 3110(c)(2)]
FINRA opted not to fine MBSC for its violative conduct because it had self-reported its violations. However, MBSC did agree to pay over $1.2 million in restitution and pre-judgment interest to the affected customers.
This case was reported in FINRA Disciplinary Actions for December 2018.
For details the case, go to ... FINRA Disciplinary Actions Online, and refer to Case #2017054119401.