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Regulatory Sanctions

IPO Purchases in Personal Brokerage Accounts – Smoking Gun for FINRA Examiners

April 17, 2018

[Photo: Smoking Gun, by Charles Knowles / Flickr]


by Howard Haykin


You can disregard that the registered individual in this case had been associated with just one firm his entire 14-year financial services career, that he is a partner with that firm, and that both he and his firm heretofore had pristine disciplinary records. There’s a first time for everything when violative conduct is involved.


A partner of a broker-dealer agreed to pay a $25K fine, serve a 45-day suspension, and pay over $28K in disgorgement to settle FINRA charges that, while associated with his member firm, he purchased shares in 52 IPOs in two brokerage accounts held at another firm.


FINRA FINDINGS.    From July 2013 through September 2015, this individual purchased shares in 52 initial public offerings (“IPOs") in 2 personal brokerage accounts held at Merrill Lynch, Pierce, Fenner & Smith. The sale of these IPOs generated around $28,000 in profits. [Not a grand amount.]


By virtue of the foregoing, this individual violated: (i) FINRA Rule 5130 (Restrictions on the Purchase and Sale of Initial Equity Public Offerings); and, FINRA Rule 2010 (Standards of Commercial Honor and Principles of Trade).

FINANCIALISH TAKE AWAYS.    FINRA points out that both personal brokerage accounts were fully disclosed to the member firm – which means that the firm probably was receiving duplicate trade confirmations and monthly statements. Which begets the question:


Why did compliance personnel at the firm not bother to review the documents for inappropriate transactions? Or, if they had, why did firm personnel disregard the fact that the associated person was participating in IPOs?


It takes little imagination to view these duplicate confirms and statements as the “smoking gun” in this case. FINRA field examiners probably looked at how the firm monitors personal brokerage accounts of its associated persons - and viola, they come across numerous (obvious and violative) IPO transactions. 


So I ask:  What’s the purpose of collecting duplicate copies of confirmations and monthly statements of outside personal brokerage accounts if no one is going to look at them?


That said, here's the one silver lining in this caseFINRA could have sanctioned the firm for failure to supervise - but didn't.


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

For details on this case, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2017054294701.