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Regulatory Sanctions

Broker-Dealer with a Single Broker ‘Gets Clocked’ by a FINRA Cycle Exam

March 14, 2018

by Howard Haykin


While it must have been unpleasant for FINRA to sanction this small firm - essentially a 'one-man-band' - the regulator’s priority is to protect the investing public. And, given the gaping holes in this firm’s compliance practices, it’s surprising that FINRA didn’t also order the firm to employ the services of an independent compliance consultant.


A small Denver, CO-based broker-dealer agreed to pay a $30K fine to settle FINRA charges that it did not update its WSPs for new and amended FINRA and SEC Rules and Regulatory Notices - even though it was reminded to do so during a 2013 FINRA cycle exam.


FINRA FINDINGS.    Phillips Capital, a FINRA member since 1960 with just 2 prior regulatory sanctions (totaling $5,000 in fines) derives most of its revenue from quarterly commissions received from a 3rd-party money manager and mutual fund trails in the form of 12b-1 fees. During the relevant time period and until April 2017, Phillips Capital had a single Registered Rep ("RR") who provided consulting services and conducted mutual fund trading for 401(k) plans. Besides the RR, the firm lists Christopher Phillips on its CRD as its President, Director, CCO, and CFO – though he’s not currently registered as a broker


Between April 2013 and October 2016, FINRA found that Phillips Capital failed to adequately maintain its WSPs and failed to adequately supervise the activities of its sole RR. FINRA noted that Phillips Capital:

  • failed to update its WSPs to reflect new and amended FINRA and SEC Rules and Regulatory Notices;
  • failed to ensure that RR collected customer information in connection with transactions;
  • failure to review RR’s electronic correspondence.
  • failed to document its approval and review of RR’s outside business activity; and,
  • failed to inspect RR’s non-branch office.


Finally, while acknowledging that Phillips Capital's CEO had completed annual certifications pursuant to FINRA Rule 3130, FINRA notes that those certifications were inadequate because the firm:

  • failed to conduct testing of the firm's supervisory controls, policies, and procedures and to prepare reports of such testing for the years 2013, 2014, 2015, and 2016; and,
  • had no record of the required testing and had no reports to senior management regarding testing of supervisory controls.


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

For details on this case, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2016047943901.