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Regulatory Sanctions

Undisclosed Transactions and Business Activities - A Broker Ruffles FINRA's Feathers

April 19, 2018

by Howard Haykin


Two things really “ruffle FINRA’s feathers:” (i) an individual who refuses to cooperate with a FINRA investigation; and, (ii) an individual who lies on a firm’s compliance questionnaire or certification in order to cover up conduct that violates FINRA rules and/or firm policies.  


A broker with UBS Financial Services agreed to be barred from the industry to settle FINRA charges that he participated in private securities transactions (“PSTs”) and outside business activities (“OBAs”) without providing prior written notice to his member firm. [Frankly, with all his PSTs and OBAs, it’s likely that this individual won't miss coming to the branch office.]


FINRA FINDINGS.    This broker, who holds the Series 9 and Series 10 Supervisor licenses, had 23 years’ experience with 7 firms. In 2009, while associated with UBS Financial Services, he became the financial advisor to a high net worth individual. From 2011 to 2016, the broker participated in 11 undisclosed PSTs and 5 OBAs with this customer. All of the broker’s outside activities and transactions were undisclosed. The broker compounded his violative conduct by failing to disclose the PSTs and OBAs on his periodic compliance certifications.


     PRIVATE SECURITIES TRANSACTIONS.     The 11 PSTs, which totaled more than $13 million, involved the customer's investment in private equity and debt securities in companies in a variety of industries - as part of the customer's overall financial plan. While the broker was not compensated for these transactions, he participated in them by, among other things: (i) referring investments to the customer; (ii) conducting due diligence and relaying his views on the transactions at the customer's request; (iii) helping the customer establish certain holding companies to make the investments; and, (iv) facilitating transfers of funds from the customer's UBS accounts to the companies.


     OUTSIDE BUSINESS ACTIVITIES.    Again, all 5 OBAs involved the same high net worth customer. Three OBAs involved Tyrrell, at the customer's request, serving as an officer of the holding companies the customer used to make his outside investments. A fourth OBA was a company the broker co-founded in which the customer invested. The fifth OBA was a concierge services company owned by the broker’s spouse with which the broker was involved. The concierge services company was formed in June 2013 in part to provide personal services to the broker’s customer.


As part of his involvement in the concierge service, the broker ”caused approximately $498,000 to be transferred from the customer's UBS accounts to the concierge services company to pay for goods and services on the customer's behalf.” However, in June 2016, the customer raised questions about the concierge services company, which prompted Tyrrell to audit the concierge company's expenditures. Approximately $130,000 was returned to the customer's UBS accounts, consisting of the balance of the customer's unspent funds held in the concierge service company's bank account, and repayment of certain operating expenses which the concierge services company had charged to the customer.


It does not appear that the customer filed a complaint against the broker, it's unclear how UBS and/or FINRA learned of the broker’s 5-year track record for undisclosed PSTs and OBAs. That said, let’s move onto the TAKE AWAYS.


FINANCIALISH TAKE AWAYS.    So, why did FINRA choose to bar this broker for his violative conduct, when it has “merely suspended” others for far worse 'crimes' – like cheating customers out of their money?


Several factors seem to play into FINRA’s decision. First, the broker participated in a rather large number of outside activities – 16 PSTs and OBAs. Second, he participated in these activities over a 5-year period – which is a rather long time to be engaged without detection. Third - and probably the smoking gun - the broker COVERED UP HIS VIOLATIVE CONDUCT by failing to disclose the PSTs and OBAs on the periodic certifications submitted UBS Financial Services.  


This case was reported in FINRA Disciplinary Actions for February 2018.

For details on this case, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2016051259501.