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Regulatory Sanctions

CCO Flunked his Supervision of OBAs and PSTs

June 28, 2018

by Howard Haykin


Whether the Principal/CCO didn’t know to ask, or didn’t think to ask, he failed to conduct adequate due diligence on the private securities sold by his firm’s brokers.


The Chief Compliance Officer with Osprey Partners agreed to pay a $5K fine and not serve in any principal capacity for 2 months to settle FINRA charges that he failed to reasonably supervise the private securities transactions of his member firm’s registered reps.


The individual in this case had 26 years’ experience with 14 firms, and held 3 Principal/Supervisory licenses: Series 4 (ROP), Series 8 (General Securities Sales Supervisor - Options), Series 23 (General Securities Sales Supervisor).


FINRA FINDINGS.    While associated with Osprey between June 2016 and May 2017, the CCO was responsible for reviewing and approving the outside business activities ("OBAs") and private securities transactions (“PSTs”) of the firm’s registered reps. In keeping with that responsibility, he approved certain of Osprey's brokers' OBAs with BCG, a self-described "multi-strategy investment holding company located in New York City." Through BCG, the registered reps offered and sold more than $8 million in promissory notes in BCG and in BIF, a fund marketed by BCG involving real-estate investments in Belize; compensation was paid directly by BCG.


The CCO went wrong in that he … failed to reasonably supervise those transactions - in particular, by not performing due diligence on the BCG or BIF offerings. He instead delegated due diligence authority to one of Osprey’s registered reps who was himself a principal of the holding company (BCG) and, therefore, not in a position to independently review the merits of BCG or BIF.


[The particular registered rep was barred in October 2017 for failing to respond to FINRA’s request for information. At the time of the sanction, he had 1 year’s experience with 3 firms].


FINANCIALISH TAKE AWAYS.    The sanctioned CCO in this case clearly used bad judgment. He improperly delegating due diligence responsibility to a registered rep who had 2 black marks going against him:

  • he was a principal with the outside business in question; and,
  • he had less than one year’s experience in the securities industry and, before joining Osprey in 2016, he had last been associated with a FINRA member firm in 2013.


Another issue in this case is whether there might have been anything underhanded about, or fraudulent with, BCG or its BIF fund. That could not be determined because FINRA offers no details, and a Google search got no result. That said, what are we to make of the fact that registered rep “MM” was booted out of the industry in October 2017 for failing to provide information to FINRA? Hmmm!


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

For details on this case, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2017053992302.