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Regulatory Sanctions

Research Director, Who Failed to ‘Hit the Ground Running’, Pays the Price

October 17, 2017

by Howard Haykin


When you sign on to run the research department of a broker-dealer – or any other area, for that matter – you typically don't have the luxury of “growing into the job.” At least from a compliance perspective. Using sports vernacular, there are no pre-season games or “warm ups.” Instead, you’re expected, from the get-go, to ensure that the firm and its associated persons are fully compliant with applicable rules and regulations. In this case, a research director is sanctioned for being ill-prepared to direct her department. Or so it seems, until one better takes a look at the firm's profile on FINRA BrokerCheck.


Adriana Piltz agreed to be censured (no specified suspension) with no monetary sanctions (owing to her financial status) to settle FINRA charges that, as her member firm’s director of research, she did not adopt and implement supervisory procedures reasonably designed to ensure that her member firm and its employees’ research reports complied with the disclosure requirements of NASD Rule 2711(h).


BACKGROUND.    Piltz, a resident of Queens, NY, has 11 years of experience with 5 firms. She obtained her General Securities Representative license in 2008, and her General Securities Principal and Research Principal licenses in 2009. Ms. Piltz joined Merriman Capital in June 2012, where she assumed the role of Director of Research. She retained that position until 9/6/16, when her registration was terminated. FINRA notes that Ms. Piltz is not currently associated with any FINRA member firm, and has no relevant disciplinary history. More about Ms. Piltz's employment with Merriman in FINANCIALISH TAKE AWAYS, below.


FINRA FINDINGS.    From the time Piltz joined Merriman as Director of Research, in June 2012, through December 2012 (the “review period”), Piltz failed to adopt and implement supervisory procedures reasonably designed to ensure that Merriman's research reports complied with the disclosure requirements of NASD Rule 2711(h), “Research Analysts and Research Reports.” 


The Firm's WSP’s relating to research stated that: “[r]esearch analysts may not distribute any research report without prior review and approval by Research Department Supervisory Staff' and that the Firm "has an automated system that generates the disclosures required by FINRA [sic] Rule 2711."


However, the WSP’s didn’t describe the specific process by which the Firm would ensure that such required disclosures were actually made. Nor did the Firm have any systems in place to track and ensure that certain required disclosure items were included in the research reports it disseminated, such as:


  • the Firm's, or research analyst's, ownership of the securities of the subject company;
  • whether the Firm acted as a manager or co-manager of public offerings of the subject company or received or sought compensation for investment banking services; or,
  • the Firm's engagement in providing non-investment banking product or services to the subject company.


FINRA further noted that Piltz failed to review 11 research reports published by Merriman to ensure that disclosures required under NASD Rule 2711(h) were properly included, that the price targets had a reasonable basis, and that the valuation methods used to determine price targets were disclosed in the research reports. While Piltz read the 11 reports, she did not adequately review their content, and she failed to verify that the final versions of the 11 research reports included the required disclosures. As a result, the 11 research reports reviewed and approved by Piltz contained multiple violations of the various disclosure requirements set forth in NASD Rule 2711(h).


FINANCIALISH TAKE AWAYS.    After reviewing FINRA BrokerCheck, I believe some interesting details about Merriman Capital “color” the facts and circumstances of Ms. Piltz’s case. That said, we should let the facts speak for themselves and consider the case on its own merits.


  • Merriman had a history of deficient WSP’s - before Ms. Piltz arrived.   In December 2013, the firm agreed to pay a $120K fine and to retain an independent consultant to settle FINRA charges that it failed to maintain adequate WSP’s for its private placements business – even though PP’s were a substantial portion of the firm’s business. FINRA also noted that Merriman failed to designate an appropriate principal to supervise PP’s of its parent company’s own securities.


  • Merriman’s business operations were suspended in July 2016.    The firm was cited for having violated FINRA’s minimum net capital requirements.


  • Merriman was expelled in January 2017.   The firm failed to pay outstanding fines or FINRA fees, among other things.


  • Ms. Piltz became Merriman Capital’s President and CCO.    Somewhere along the way, Ms. Piltz was promoted(!?) from Director of Research. [Not a comforting situation, given the firm’s precarious regulatory standings.] 


  • All in all, some rather confusing circumstances.


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

For details on this case, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2013034982604.