BROWSE BY TOPIC
- Investments - Strategies
- Investments - Unsuitable
- Wall Street News
- Investor Protection
- Compliance Concepts
- Bad Brokers
- Investments - Private
- Rules & Regulations
- Bad Advisors
- Boiler Rooms
- Terminations/Cost Cutting
- General News
- Donald Trump & Co.
- Big Banks
- Regulatory Sanctions
Stories of Interest
- Sarah ten Siethoff is New Associate Director of SEC Investment Management Rulemaking Office
- Catherine Keating Appointed CEO of BNY Mellon Wealth Management
- Credit Suisse to Pay $47Mn to Resolve DOJ Asia Probe
- SEC Chair Clayton Goes 'Hat in Hand' Before Congress on 2019 Budget Request
- SEC's Opening Remarks to the Elder Justice Coordinating Council
- Massachusetts Jury Convicts CA Attorney of Securities Fraud
- Deutsche Bank Says 3 Senior Investment Bankers to Leave Firm
- World’s Biggest Hedge Fund Reportedly ‘Bearish On Financial Assets’
- SEC Fines Constant Contact, Popular Email Marketer, for Overstating Subscriber Numbers
- SocGen Agrees to Pay $1.3 Billion to End Libya, Libor Probes
- Cryptocurrency Exchange Bitfinex Briefly Halts Trading After Cyber Attack
- SEC Names Valerie Szczepanik Senior Advisor for Digital Assets and Innovation
- SEC Modernizes Delivery of Fund Reports, Seeks Public Feedback on Improving Fund Disclosure
- NYSE Says SEC Plan to Limit Exchange Rebates Would Hurt Investors
- Deutsche Bank faces another challenge with Fed stress test
- Former JPMorgan Broker Files racial discrimination suit against company
- $3.3Mn Winning Bid for Lunch with Warren Buffett
- Julie Erhardt is SEC's New Acting Chief Risk Officer
- Chyhe Becker is SEC's New Acting Chief Economist, Acting Director of Economic and Risk Analysis Division
- Getting a Handle on Virtual Currencies - FINRA
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.
NEWSLETTERS & ALERTS
FINRA Gets It Wrong in Undue Concentration Case
by Howard Haykin
Geraldine Gordon agreed to a $7.5K fine and a 10-day suspension to settle FINRA charges that she recommended that a customer liquidate invest half of her liquid net worth in a single Master Limited Partnership.
BACKGROUND. Gordon, a resident of Lexington, KY, has been registered since May 1994 – serving throughout her brokerage career as a General. Securities Rep with Ameriprise Financial Services. She had no formal disciplinary history.
FINRA FINDINGS. In June 2013, Gordon recommended that her customer, “WF,” liquidate a number of diversified investments in her Ameriprise brokerage and IRA accounts, which comprised approximately half of her liquid net worth. Gordon then recommended that WF use the $334,000 in proceeds to purchase a single Master Limited Partnership focused on the energy sector. The MLP prospectus described the investment as speculative.
According to FINRA, Gordon's recommendations were unsuitable in light of the customer's financial condition, and because the investment represented an undue concentration of the customer's net worth.
FINANCIALISH TAKE AWAY. Welcome back to another lesson in “WHERE’S THE SUPERVISION?” A customer is directed to invest half her liquid net worth in a Master Limited Partnership, or MLP, which FINRA describes as “speculative” – in part because there’s a limited secondary market - and yet, there's no mention about a lack of oversight or supervision.
While it's appropriate for customers to view their brokers as a first line of defense against 'wayward' or unsuitable investments - with or without the fiduciary standard - the broker-dealer is undeniably a viable second line of defense.
So where's the logic in this case, where the broker gets a slap on the wrist, while Ameriprise and its supervisory personnel get … no sanctions? As such, I’ve got 2 problems with the 'verdict' in this case:
- A $7.5K fine and a 10-day suspension sounds too light on 2 counts: (i) Gordon probably earned a hefty commission on the liquating and purchase transactions; and, (ii) If the MLP was as speculative and unsuitable as FINRA makes it out to be, then a larger and more punitive fine and suspension would have been in order.
- Undue concentrations are easy to monitor and detect. So why wasn’t it picked up by Ameriprise Compliance? And if Ameriprise didn’t investigate the transactions to establish the customer’s comfort levels – which is probably the case because FINRA only issued sanctions against the broker – then why were the firm and Compliance personnel not sanctioned, as well?
Something smells with FINRA’s handling of this case, and it’s not pleasant.
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 #2016049353501.