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Regulatory Sanctions

In Transition, a Broker-Dealer Forgets to Check Off All the Boxes

March 28, 2019

by Howard Haykin


When a broker-dealer withdrew its membership with FINRA in early 2017, around 70 of its registered reps migrated to another firm (“AGES”). At that time, FINRA staff stressed to AGES the importance of carefully managing the transition of the representatives to AGES, particularly in light of the disciplinary history of the former firm, which included supervisory deficiencies. Apparently AGES forgot to check off all the boxes during this transition.



WHAT WENT WRONG ACCORDING TO FINRA.    During a routine firm examination, FINRA staff found that AGES – even with FINRA’s forewarnings - failed to capture the business-related emails of a number of the newly hired representatives for retention and review – as many of the reps continued to use their prior firm email addresses after they joined AGES. And, needless to say, those email addresses were not approved or supervised by AGES.


From February 2017 through August 2017, at least 11 reps sent at least 2,000 emails from their former firm email addresses to their securities customers. Among other things, the emails dealt with investment- and/or account-related information such as: (i) the purchase and sale of bonds and stocks; (ii) the forwarding of account-opening documents, account transfer forms and trade confirmations; and, (iii) account balance information. NONE OF THOSE EMAILS WERE CAPTURED FOR CONTEMPORANEOUS REVIEW OR RETENTION.


AGES compounded its errors by failing to detect critical red flag alerts. In several instances, new reps used their former firm email addresses to exchange emails with approved AGES email addresses. This, according to FINRA staff, should have alerted the Firm to the fact that a number of its new reps were still using their former firm email addresses to conduct securities business - however, AGES never noted the use of the old, unsupervised emails.


Finally, while AGES required associated persons to sign attestations that they would abide by the Firm's policies regarding e-communications, which required use of Firm-approved email addresses, at least 20 new reps never completed the email attestation when they joined AGES.


By virtue of the foregoing, AGES violated Books and Records rules (Rule 17a-4 of the Exchange Act, and FINRA Rule 4511), FINRA Supervision Rule 3110. The firm agreed to pay a $20K fine.



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

For further details, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2017052216701.