More On Legal & Compliancefrom The Advisor's Professional Library
- Whistleblowers A whistleblower is any individual providing the SEC with original information related to a possible violation of federal securities law. The Dodd-Frank Act established a whistleblower program that enables the SEC to reward individuals who voluntarily provide such information.
- Conducting Due Diligence of Sub-Advisors and Third-Party Advisors Engaging in due-diligence of sub-advisors isnt just a recommended best practice it is part of the fiduciary obligation to a client. An RIA should be extremely reluctant to enter a relationship with a sub-advisor who claims the firms strategy is proprietary.
FINRA board member Joel Blumenschein has resigned as he was recently fined $30,000 and suspended by FINRA for allegedly failing to supervise one of his company’s brokers, Gary Gossett.
The complaint against Blumenschein, president of Freedom Investors, claimed that Gossett made “a series of unsuitable penny stock trades in the retirement account of a customer of limited means” without the customer’s permission.
FINRA described Freedom Investors' oversight system as “so inadequate that Blumenschein was unable to provide a consistent or coherent description of it.” FINRA also claimed in the settlement that “his testimony, under oath, was at times both evasive and contradictory, thus highlighting the system's inadequacies.”
Tracy Stoneman of Stoneman Law Firm in Westcliffe, Colo., said in a statement that she has long felt that FINRA and its predecessor, the National Association of Securities Dealers, have been “soft" on their members. She penned a book in 2002 titled “Brokerage Fraud: What Wall Street Doesn't Want you to Know,” in which she criticized the regulators for being incapable of properly supervising their own members because of the “conflict in not wanting to bite the hand that feeds it.”
Stoneman, who’s about to write another book that she says will “have even harsher criticism of the regulators,” said that the recent FINRA board member sanction is a perfect example of a serious problem in the upper ranks of FINRA “when board members participate in the same wrongful activity that FINRA is charged with supervising.”