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Regulatory Sanctions

Remote Branch Manager Failed to Register or Supervise

May 28, 2019

by Howard Haykin



I AM A BRANCH MANAGER!  Then act like one. Yet, what could one reasonably expect from a registered individual who's been with 16 firms over a 15-year career?
A registered rep, who functioned as a principal for Dakota Securities International without becoming registered as a General Securities Principal (“GSP”), also failed to reasonably perform his supervisory duties.



Shortly after buying a significant ownership interest in Dakota Securities International, a Venezuelan citizen (who owned several Venezuelan entities including a broker-dealer and an investment bank) opened a branch office in Caracas, Venezuela. He hired a long-time acquaintance to work from Dakota's Miami, FL, office as Dakota's head trader and to supervise personnel and trading for the Firm's Caracas branch office (the “designated individual”).


By the time this registered rep and long-time acquaintance became associated with the Firm in April 2014, the Firm's primary business had shifted from domestic retail securities transactions to transactions involving foreign sovereign debt. The Firm's customer base also shifted from domestic retail customers to primarily foreign institutional accounts, so that over 90% of Dakota's reported bond trades in 2014 were in bonds issued by Petroleos de Venezuela S.A., the Venezuelan state-owned oil company, including numerous, complex, trades among affiliates owned and controlled by the Venezuelan citizen, with no apparent economic rationale.



FAILURE TO REGISTER AS A GSP.    The designated individual was not registered with FINRA as a GSP at any time during his 8-to-9-month association with Dakota (April 2014 to December 2014) even though he was functioning as a principal. In particular, the Firm's WSPs designated him as a supervisor of Dakota's Caracas branch office and of the Firm's institutional sales and trading desk. In these roles, the designated individual was responsible for supervising 2 FINRA-registered traders located in the Firm's Caracas office and for reviewing and approving trading conducted through that branch office.


Yet, while the designated individual was previously registered with FINRA as a GSP with other FINRA member firms, that registration was only in effect until February 2009. Since more than 2 years elapsed by the time he was hired by Dakota in 2014, that license had expired - which meant the designated individual had to retake and pass the Series 24 exam before he could once again serve as a principal. Given 3 opportunities by the Firm to take the Series 24 exam, this individual either didn’t take it or he failed to pass it.



FAILURE TO SUPERVISE.    Dakota's WSPs required the designated individual to perform specific reviews and surveillance measures for the Caracas branch office. For example, he was to conduct a daily review of transactions to detect potential insider trading and other violative or suspicious activity, including "high risk" trading patterns and transfers between related and affiliated accounts.


However, the designated individual failed to review any of the transactions effected through the Caracas branch office for such activity, and did not otherwise reasonably supervise that branch or the 2 FINRA-registered traders who operated out of that location. Although he reviewed bond transactions for best execution purposes only, he did not review transactions for any other supervisory purposes, and did not implement any exception reporting to detect or respond to any patterns of activity that raised potential issues. Rather, the designated individual approved transactions without taking reasonable steps to determine if they presented any indicia of any violations of securities laws or FINRA rules.



To settle FINRA charges that he violated NASD Rules 3010(a) and 3010(b), and FINRA Rules 3110(a), 3110(b), and 2010, the designated individual agreed to serve a 9-month suspension in all capacities. In light of his financial status, no fine was imposed.



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

For further details, click on...  FINRA AWC #2015047215402.