Subscribe to our mailing list

* indicates required







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.




Regulatory Sanctions

Broker's Negligence On Display in Presentations to Customers

April 29, 2019

by Howard Haykin


Computational, classification and copying errors on customer presentations are annoying; recurring errors are intolerable. They indicate negligence, reflect poorly brokers and their firms, and often lead to customer flight. So, while FINRA addresses the failings of one broker in this case, why not extend judgment to the firm and question why it failed to anticipate errors?



A broker with Crown Capital Securities agreed to pay a $7.5K fine and serve a 2-month suspension to settle FINRA charges that his negligence caused numerous errors and inaccuracies on alternative investment forms (“AIO Forms”) that he prepared for firm customers.


WHAT WENT WRONG.    Between August 2015, and July 2016, the broker filled out 19 AIO Forms on behalf of 6 customer households which, due to his negligence, contained errors and inaccuracies. These errors and inaccuracies fell into 4 categories:


  • He double-counted assets held away from Crown Capital in direct pension benefit plans – i.e., individual holdings were counted in both their individual investment categories (stocks, bonds, etc.) and in the "other assets" category.


  • He incorrectly computed net worth and then, in some instances, copied those same errors to other forms.


  • He miscategorized guaranteed income from pensions or Social Security as "current assets" based on the present value of the future income stream.


  • He understated the amount of existing alternative investment holdings by either: (i) unintentionally understating the value of existing tenants-in-common or rental holdings; or, (ii) misclassifying those existing holdings as personal real estate (instead of as alternative investments).



By repeatedly committing these mistakes, this broker not only risked his customer relationships, but he caused the broker-dealer to maintain inaccurate books and records in violation of FINRA Rule 4511.



FINANCIALISH TAKE AWAYS.    It’s unfortunate that these errors were not detected early in the process, because had they been noticed someone might have taken the time to to proofread this broker's AIO Forms before they were presented to customers. Yes, the broker in this case was at fault for his negligence. But FINRA might have been justified in citing Crown Capital Securities for not having in place a process to double-check (at least on a random basis) selected workproducts by its brokers.


After all, it was Benjamin Franklin who said, “An ounce of prevention is worth a pound of cure.”



This case was reported in FINRA Disciplinary Actions for April 2019.

For further details, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2016050828001.