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Regulatory Sanctions

Small Investment Banking Firm Sloppy with Registrations

February 7, 2019

by Howard Haykin


A routine FINRA exam revealed that a small M&A boutique had allowed 4 associated persons to conduct investment banking activities without requiring them to pass the Investment Banking Representative (Series 79) examination. To settle the charges, the firm agreed to a $50K fine.



WHAT WENT WRONG.    Between January 2013 and October 2016 (the "Relevant Period”), 3 individuals employed by the firm were not registered in any capacity, and 1 individual was only registered as a General Securities Rep (Series 7), notwithstanding the fact that all 4 were conducting investment banking activities on behalf of the firm, which required them to pass the Series 79 exam and become registered as Investment Banking Reps.


  • These individuals engaged in investment banking on as many as 113 offerings, taking part in various investment banking activities
    • e.g., soliciting emerging companies to retain the Firm’s services in preparing for private offerings, conducting investment banking research, creating models and presentations, and developing potential investor lists.


  • The Firm was aware that these individuals were involved in investment banking activities and that they were not qualified and registered to engage in such work.


  • The Firm incorrectly concluded that the person holding the Series 7 registration was already qualified as an Investment Banking Rep.


  • The Firm instructed the other 3 to take the Series 79 exam at various times beginning in August 2013, but then failed to follow up to ensure they had taken and passed the examination.
    • None of these individuals ever became qualified as Investment Banking Reps.


By virtue of the foregoing, the Firm violated the regulator’s Membership and Registration Rules (NASD Rule 1031), Supervision Rules (NASD Rule 3010 and FINRA Rule 3110). 



FINANCIALISH TAKE AWAYS.    Oftentimes FINRA hits firms with “Failure to Reasonably Supervise” based simply on the perception or logic that … had their supervisory policies and procedures (WSPs) been reasonable and adequate, the firm would not have committed the violative conduct. (IN MY VIEW) A TRUMPED UP CHARGE.


Yet, in this case, FINRA's charge is appropriate and well deserved - the firm acted in a sloppy and negligent manner. How else would one describe it when a firm has only 10 registered reps yet somehow loses sight of registration requirements for 4 of its associated persons? THANKS, FINRA, FOR THE PRACTICAL MESSAGE AND CONSTRUCTIVE CRITICISM.



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

For further details, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2016048228001.