BROWSE BY TOPIC
- Bad Brokers
- Compliance Concepts
- Investor Protection
- Investments - Unsuitable
- Investments - Strategies
- Wall Street News
- Investments - Private
- Rules & Regulations
- Bad Advisors
- Boiler Rooms
- Terminations/Cost Cutting
- General News
- Donald Trump & Co.
- Regulatory Sanctions
- Big Banks
Stories of Interest
- Sarah ten Siethoff is New Associate Director of SEC Investment Management Rulemaking Office
- Catherine Keating Appointed CEO of BNY Mellon Wealth Management
- Credit Suisse to Pay $47Mn to Resolve DOJ Asia Probe
- SEC Chair Clayton Goes 'Hat in Hand' Before Congress on 2019 Budget Request
- SEC's Opening Remarks to the Elder Justice Coordinating Council
- Massachusetts Jury Convicts CA Attorney of Securities Fraud
- Deutsche Bank Says 3 Senior Investment Bankers to Leave Firm
- World’s Biggest Hedge Fund Reportedly ‘Bearish On Financial Assets’
- SEC Fines Constant Contact, Popular Email Marketer, for Overstating Subscriber Numbers
- SocGen Agrees to Pay $1.3 Billion to End Libya, Libor Probes
- Cryptocurrency Exchange Bitfinex Briefly Halts Trading After Cyber Attack
- SEC Names Valerie Szczepanik Senior Advisor for Digital Assets and Innovation
- SEC Modernizes Delivery of Fund Reports, Seeks Public Feedback on Improving Fund Disclosure
- NYSE Says SEC Plan to Limit Exchange Rebates Would Hurt Investors
- Deutsche Bank faces another challenge with Fed stress test
- Former JPMorgan Broker Files racial discrimination suit against company
- $3.3Mn Winning Bid for Lunch with Warren Buffett
- Julie Erhardt is SEC's New Acting Chief Risk Officer
- Chyhe Becker is SEC's New Acting Chief Economist, Acting Director of Economic and Risk Analysis Division
- Getting a Handle on Virtual Currencies - FINRA
We seek to provide information, insights and direction that may enable the Financial Community to effectively and efficiently operate in a regulatory risk-free environment by curating content from all over the web.
Stay Informed with the latest fanancialish news.
NEWSLETTERS & ALERTS
This Outside Business Activity was Really a Private Securities Transaction
by Howard Haykin
For 14 years, a Centennial, CO-based broker-dealer (“Broker-Dealer”) had operated without a disciplinary action. The firm, whose business consists primarily of private placements and retailing equity securities, has 26 registered reps operating out of 3 branch offices.
But this Broker-Dealer apparently erred in 2016, and so it agreed to pay a $15K fine to settle FINRA charges that it failed to comply with its obligations to review, approve, document, and supervise private securities transactions ("PSTs") by 3 of its registered reps – in apparent violation of Rule 3280(c) and its own WSPs.
FINRA RULE 3280(C). After a member firm has received written notice of a private securities transaction wherein an associated person has received or may receive selling compensation,' the firm must approve or disapprove the person's participation in writing. If the firm approves the associated person's participation in the transaction, the firm must then record the transaction on the firm's books and records and supervise the person's participation in the transaction as if the transaction was executed on behalf of the member.
FINRA FINDINGS. In May 2016, the Broker-Dealer approved an outside business activity (“OBA”) of 3 registered reps - a limited liability company ("LLC"), whose membership interests the registered reps wanted to sell for the purpose of pooling investor funds to invest in a separate offering for which the Broker-Dealer was serving as placement agent. The 3 registered reps sold $2.5 million of LLC interests to customers, and then invested those funds in the separate offering for which they received selling compensation in the form of commissions paid by the Broker-Dealer.
However, FINRA was troubled by certain additional terms and conditions of the OBA. Since at least May 2016, the Broker-Dealer was aware that the 3 registered reps may receive additional compensation in the form of expense reimbursements, future profits, and an ownership interest in the LLC.
It was those additional terms and conditions that transformed the OBA into a PST. And even though the firm had properly posted the private placement on its books, and then properly accounted for the commissions paid to the registered reps on the original private placement, the Broker-Dealer erred when it failed to “supervise and maintain on its books and records” the transactions of the LLC as a separate and distinct PST.
This case was reported in FINRA Disciplinary Actions for December 2018.
For details the case, go to ... FINRA Disciplinary Actions Online, and refer to Case #2017052070001.