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Regulatory Sanctions

Commission Sharing: One Good Turn Deserves Another

April 8, 2019

by Howard Haykin


… Thanks, but no thanks. The first one, along with using my personal email account, cost me $20K and 2 months.



Those sanctions were handed down by FINRA against "JD," a broker with Securities America, who placed 2 securities transactions for a registered rep ("AF") with another firm and split the commissions generated from the transactions with that representative. FINRA's investigation further revealed that JD used his personal email account for firm-related communications. Here are the storylines... 



SHARING COMMISSIONS.    In 2014, AF proposed that one of his clients exchange a fixed annuity for 2 variable annuities. When his firm rejected the proposed transaction, AF referred his client to JD, who recommended and completed the annuity switches. Throughout the process, however, AF remained very much involved and, in late 2014 and early 2015, JD paid AF $50,000 – about half of the commissions generated by the transactions. While the securities transactions were legitimate, the payments were not. They were effected without the knowledge or consent of either firmand, most importantly, the commission-sharing was never reflected on Securities America's books and records. 


The improper and undisclosed sharing of commission caused Securities America’s books and records to be inaccurate, thereby violating FINRA Rule 4511.



USING PERSONAL EMAIL ACCOUNT.     When JD was with Securities America, he was warned about having his assistant use a personal email address for business communications. This led Securities America to place JD on heightened supervision, in part due to this issue. 


Fast forward to October 2016, and JD was now with Liberty Partners Financial Services. From October 2016 to October 2017, JD once again permitted his assistant to use his personal email address to communicate with numerous customers. Though more than 700 business-related emails were exchanged, JD never forwarded any to Liberty Partners for its review or retention.   


The use of personal email caused Liberty Partner’s books and records to be inaccurate, thereby also violating FINRA Rule 4511. JD and others at Liberty Partners have represented that they have since discussed the issue and JD's assistant is no longer using personal email to conduct firm business.



LET HE WHO IS WITHOUT SIN CAST THE FIRST STONE.    Regrets for getting biblical with my readers. Jesus is credited with having uttered these words of wisdom, and the relevance to this article is that every broker, at one time or another, has violated securities rules and regulations. Thus, if and when FINRA has occasion to drill down into a broker's past behavior, the regulator is likely to unearth past violative conduct - as happened in the above case.


The Moral: Don't get caught committing rule violations because, if you're caught, past sins will be revealed - like stones at the bottom of the Red Sea.



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

For further details, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2018058158801.