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NEWSLETTERS & ALERTS
FINRA Caught Broker in a State of ‘Suspended Animation’
[Photo: Suspended Animation (Blueberry … Intro), by Jett Badass Michaels / YouTube]
by Howard Haykin
An individual associated with Potomac Capital Markets agreed to pay a $10K fine and serve a 14-month suspension, settling FINRA charges that he acted in the capacity of a registered rep while suspended by FINRA in all capacities.
FINRA FINDINGS. FINRA suspended the individual on July 10, 2013, after he apparently failed to comply with an arbitration panel's award or settlement agreement that required him to repay a former employer for an unvested broker signing bonus. The individual left his former employer with one year remaining on the bonus vesting schedule.
Unfortunately, while serving that suspension (which FINRA lifted 4 months later) the suspended broker continued to act in the capacity of a registered rep at Potomac. On multiple occasions, he acted on behalf of his private fund clients - e.g., private equity funds and hedge funds – by soliciting prospective investors to purchase limited partnership interests in these funds. As a result of violating his original suspension, the individual was hit with a $10K fine and 14-month suspension.
FINANCIALISH TAKE AWAY. Upfront signing bonuses or forgivable notes that broker-dealers pay to new registered reps are a 2-edged sword. The money is generous and the forgiveness divine. But if the broker fails to fulfill his obligation – namely, serving out the term of his or her vesting period, or failing to meet sales targets – then the broker usually has little recourse but to repay the bonus (which he or she has undoubtedly already spent).
Clawbacks of unvested signing bonuses are a harsh reality, and arbitrators invariably will decide in favor of the employer. And that appears to be what happened in this case.
This case was reported in FINRA Disciplinary Actions for August 2017.
For details on this case, go to ... FINRA Disciplinary Actions Online, and refer to Case #2014043691301.