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Non-Registered Person Pays Dearly for Managing Small Undisclosed Brokerage Account
by Howard Haykin
In April 2016, around the time he became associated with Ameriprise as a non-registered fingerprint person, this individual agreed to continue managing a brokerage account for one of his former investment advisory customers. The brokerage account was held at another FINRA member firm and was valued at $9,339. And the NFR person would receive no selling compensation. That said, the NRF person never notified Ameriprise of his intentions – which FINRA considered private securities transactions - and he obviously never obtained the firm’s written approval.
Between April 2016 and November 2017, this NRF person executed 132 securities transactions in the small brokerage account, primarily in blue chip or large-cap stocks in the technology, energy, and financial sectors. And he successfully increased the account value by 33%, from $9,339 to $12,476.
FINANCIALISH TAKE AWAYS. While FINRA’s sanctions seem severe, they are probably appropriate given the large number of trades that were executed – notwithstanding the relatively small principal balance of this undisclosed outside brokerage account.
Perhaps this NRF person may have remained in the clear by following one of 2 possible alternatives - though some may consider 'Plan A' borderline violative in nature:
- Plan A - A strictly conversational relationship between the NRF person and his former advisory customer, whereby the NRF person offers recommendations that his former advisory customer could/would then execute in her brokerage account.
- Plan B - The NRF person would notify Ameriprise of his intentions, presenting his reasons for the request and offering to copy the firm in on all trade confirms and account statements. [If rejected, he could always resort ot ‘Plan A’.]
This case was reported in FINRA Disciplinary Actions for June 2019.
For further details, click on... FINRA AWC #2018057602801.