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Regulatory Sanctions

Fired, Fined, Suspended for an Undisclosed Outside Brokerage Account

May 29, 2018

by Howard Haykin


A broker-dealer terminated an association person, providing no reason on its Form NRF (Non-Registered Fingerprint) Amendment filing. FINRA followed up - much like a coroner might after an individual has died of suspicious or unspecified reasons. FINRA came to learn that the associated person held undisclosed outside brokerage accounts. Really? And all because a firm offered no reason for the termination? 


A non-registered associated person with Goldman Sachs agreed to pay a $5K fine and serve a 45-day suspension to settle FINRA charges that, upon beginning his employment with this firm, he failed to disclose the existence of an outside brokerage account that he held at another broker-dealer.


FINRA FINDINGS.    The individual joined Goldman Sachs in February 2015 and 18 months later he was terminated. [For the record, the individual had earlier worked for Goldman Sachs Execution & Clearing - from 2000 through 2011.] The termination was announced by the firm in its Form NRF (Non-Registered Fingerprint) Amendment filing - with no reason provided.   


FINRA subsequently learned that this individual …

  • upon joining the firm, had been one of 2 named trustees on a brokerage trust account (the "Trust Account") held at another broker dealer that had been open since at least 2006.
  • was also a beneficiary of the Trust Account and was authorized to trade that account since its inception.
  • certified on an Annual Compliance Questionnaire that he had “no brokerage or managed accounts held outside the Firm to disclose for myself or any related person."


Violations of NASD Rule 3050(c) ... which provides that "[a] person associated with a member, prior to opening an account or placing an initial order for the purchase or sale of securities with another member, shall notify both the employer member and the executing member, in writing, of his or her association with the other member."


NASD Rule 3050 further states that that if the account was established prior to the association of the person with the employer member, the associated person shall notify both members in writing promptly after becoming so associated. Paragraph (e) of Rule 3050 specifies that the requirements of paragraph (c) apply to accounts in which the associated person has either a financial interest or discretionary trading authority.


FINANCIALISH TAKE AWAY.    Associated persons typically fail to disclose outside brokerage accounts - to both the employer and executing firms - when trying to evade the restrictions against: (i) participating in Initial Public Offerings; and, (ii) exercising discretionary authority over others' funds. 
I'm guessing that the individual in this case chose not to disclose the account simply avoid some administrative hassles - which would be a lame excuse. Firms would do well to remind reinforce the industry guidelines for outside brokerage accounts - if for no other reason than to save the souls of a few wayward employees


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

For details on this case, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2016051250001.