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Regulatory Sanctions

FINRA Bars CCO After She Gets Caught in a Web of Lies

July 20, 2017

by Howard Haykin


This case demonstrates that compliance officers won’t get credit for supervisory reviews unless they evidence such reviews in writing. And, simply initialing and dating are rarely sufficient – especially when reviews identify issues or suspicious facts and circumstances that require follow-up investigations and resolution.  


Suzette Foster was barred from the securities industry to settle FINRA charges that, during the course of an investigation, she created and provided false and misleading documents in response to information requests and she provided false and misleading testimony during her sworn on-the-record interview.


BACKGROUND, DISCIPLINARY HISTORY.    Foster, a resident of Hoover, AL, first became registered with a member firm in 1999 and obtained a Municipal Securities Principal license that same year. She joined Proequities as an investment adviser and compliance officer in 2001 and, in October 2013, became the firm's CCO, a position she retained until she resigned from the firm on 10/8/15. Foster has no disciplinary history.


SUMMARY.    In this case, the Muni Bond Team of FINRA Market Regulation launched in April 2015 a review of trade reporting of municipal securities by Proequities for the period, January-February-March of 2014. Examiners found that Foster: (i) created and provided the staff with false and misleading documents in response to 2 separate info requests; and, (ii) provided false and misleading testimony during her sworn on-the-record ("OTR") interview. Based on this conduct, Foster violated FINRA Rules 8210 and 2010.


FINRA FINDINGS.    Following multiple requests from FINRA for information related to the firm’s transaction reporting of muni securities, along with evidence of supervisory reviews, the firm responded, as follows:


"[b]elow is a response from Mrs. Suzette Foster....: The firm's municipal securities principal reviews the RTRS Error Code Review and Response Report (from the RTRS Web interface) on a monthly basis. Any trades which are coded as reported late are reviewed with the trading staff to determine the reason for the late reports. The reports for January, February and March 2014 are attached."


The attached 2-page reports for January 2014, February 2014, and March 2014 turned out to be .pdf copies of printed screen shots of the Error Code Review and Response Reports that are viewable through the RTRS Web interface. Each report was initialed and dated (on 2/6/14, 3/12/14, 4/9/14), with the hand-written notations intended to reflect “reviews” conducted by Ms. Foster.


When asked for evidence of a contemporaneous supervisory review for trade reporting of municipal securities for 2014 review period, Ms. Foster sent an email to the staff that included a .pdf attachment of 3 one-page spreadsheets with muni securities trading information for the 3 months (the "second set of reports").

  • Once again, these Error Code Reports had been downloaded from the MSRB's RTRS web site.
  • And, once again, the one-page spreadsheets included the same hand-written dates noted above.


Ms. Foster then gave sworn OTR testimony in which she represented that the first set of reports did not represent her original evidence of supervisory review. Rather, they had been created on May 18, 2015, because they more clearly laid out the supervisory reviews that she originally conducted in one year earlier. Ms. Foster further testified that she had initially documented the reviews on the spreadsheets that were provided as the second set of reports.


However, prior to Ms. Foster’s testimony, FINRA examiners obtained evidence demonstrating that she had not accessed the RTRS Web interface between January 1, 2014 and early May 2014. When presented with the evidence, Ms. Foster responded that other firm employees may have created the reports for her – which turned out to be inconsistent with the testimony of other firm employees during the investigation.


FINANCIALISH TAKE AWAYS.    So, a Chief Compliance Officer never reviewed muni bond transactions for the 3 months under investigation by FINRA. And, it’s quite possible that the CCO made it a practice of never reviewing any muni transactions, or of never delegating that responsibility to other compliance officers. FINRA might have made that determination had it bothered to extend the scope of its initial investigation.


Regardless, the CCO opted to deceive the FINRA examiners, rather than admit her supervisory failures. And she opted to produce spurious documents that ultimately fooled no one. When questioned, she compounded her deception with lies – which cemented her fate. 


Had she 'fessed up', Ms. Foster might still be in the industry, though subject to some stiff penalties.


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

For details on this case, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2014041123201.