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Regulatory Sanctions

Private Securities Transactions End Badly for Broker and Sales Assistant

June 26, 2017

by Howard Haykin


Neal and Natalie Moon, husband and wife, registered rep and sales assistant, agreed to settle FINRA charges that they participated in private securities transactions in which 6 customers invested a total of $2.64 million in 3 different entities, without providing prior written notice to her member firm. Neal was barred from the industry; Natalie accepted a $5K fine and 12-month suspension.


NATALIE MOON’S BACKGROUND.    In June 2013, Ms. Moon, a resident of Dallas, TX, became associated with Waddell as an unregistered office manager and sales assistant to Neal Moon. In those capacities Fogiel spoke with customers, assisted in the opening of customer accounts, sent mail to customers, conducted research and answered questions concerning 401K distributions, explained different Firm platforms, prepared compliance reports and trade blotters for Moon's review, attended customer meetings, processed customer check requests, received customer checks, opened customer mail and managed customer files. In September 2015, Waddell & Reed filed a Non-Registered Fingerprint Amendment disclosing that Ms. Moon was terminated. She has not associated with another FINRA member since that time.


NEAL MOON’S BACKGROUND.    Neal Moon, a resident of Dallas, TX, entered the securities industry in June 1999 and, in his 14 years’ experience has worked for 5 firms - including Waddell & Reed, which he joined in 2009 as a General Securities Representative. Moon remained there until September 2015, when he was permitted to resign following his admission that he was involved in the sales of undisclosed private securities transactions. Moon is out of the securities industry business.


FINRA FINDINGS. Neal Moon was the registered rep, while wife Natalie Moon was his sales assistant. From February 2012 to August 2015, Neal Moon participated in 9 private securities transactions, while Natalie Fogiel Moon participated in 6 private securities transactions, in which 6 customers invested a total of $2.64 million in 3 different entities. While participating in these private securities transactions, Mr. & Mrs. Moon did not provide Waddell and Reed with prior written notice of their participation in the private securities transactions. Such actions would violate NASD Rule 3040 and FINRA Rule 2010.


Initially, Moon denied to a Firm investigator that he participated in certain private securities transactions. He also represented in 3 annual certifications to the Firm that he had not engaged in any private securities transactions. Such actions would violate FINRA Rule 2010.


FINANCIALISH TAKE AWAY.   The FINRA sanctions against Mr. and Mrs. Moon were particularly harsh, in part because the undisclosed private securities transactions took place over a prolonged period - 3-1/2 years. Mr. Moon helped extend the sanctions to a bar from the industry because he lied - to a firm investigator (no, we don't know how the firm found out) and to the firm (on his annual compliance questionnaires).


Which raises the question of whether FINRA places too much reliance in its disciplinary sanctions on responses to Annual Compliance Questionnaires. This is a loaded issue which I will address in a separate posting. But, for the moment, let's consider a few relevant points.


Reasons for Taking ACQs into Consideration.

  • A broker who engages in undisclosed PSTs likely knows that he or she is violating firm policy and industry regulations. Consider the ACQ as an opportunity for that broker to "come clean" and "confess his or her sins."  Failure to do so, therefore, is a second and separate violative action.
  • Long before a broker engages in undisclosed PSTs, he or she likely knows "right from wrong' - i.e., acceptable vs. unacceptable activities. They are familiar with firm compliance policies and industry guidelines by any or all of 4 avenues: (i) by reading the firm's compliance manual; (ii) by seeking advice of the firm's compliance officer; (iii) by attending  and digesting annual continuing education programs; and, (iv) by completing the ACQ, which details many relevant guidelines. Lying on ACQs, therefore, shows an utter disregard for rules and regulation and, therefore, should stand on its own as a violative action.

Reasons for Not Taking ACQs into Consideration.

  • Few people are likely to incriminate themselves after violating firm policies or securities rules and regulations. If only a handful of firms self-report violations, why should FINRA hold registered persons to a higher level of compliance. Thus, ACQs should not carry disproportionate weight in disciplinary determinations.
  • Denying on a broker's ACQ that he or she did not engage in, say, undisclosed private securities transactions when in fact he or she had done so, should be viewed as the continuation or furtherance of the original violative action(s). 
  • FINRA's declaration that lying on one's ACQ causes a firm's book and records to be inaccurate is, at best, a trumped up or "feather bedding" charge that really carries no weight.


This case was reported in FINRA Disciplinary Actions for June 2017.

For details on this joint case, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2015046926801.