The Financial Industry Regulatory Authority fined two independent broker-dealers owned by Ladenburg Thalmann (LTS) — Triad Advisors and Securities America — $650,000 and $625,000, respectively, on Wednesday for failing to supervise their consolidated client-account reporting systems. Triad also was asked to pay $375,000 in restitution.
This failure, FINRA says, led to statements with inaccurate valuations being sent to customers. In addition, the IBDs did not keep consolidated reports for clients in accordance with securities laws, the regulatory group explains.
“Firms must ensure that consolidated reports sent to customers are clear, accurate and not misleading,” said Brad Bennett, FINRA’s executive vice president and chief of enforcement, in a statement. “Absent proper supervision, consolidated reports can be used by unscrupulous representatives to conceal fraud and theft.”
Both Triad Advisors and Securities America had consolidated report systems that let their financial advisors create reports with customized asset values for accounts held away from the firm. For more than two years, FINRA notes, Triad and Securities America “failed to supervise hundreds of brokers, some of whom were creating and sending false and inaccurate consolidated reports to customers.”
Many of the reports contained inflated values for investments, some of which were in default or receivership, the regulatory group adds.
“Moreover, at Triad, a number of consolidated reports sent to customers reflected fictitious promissory notes or other fictitious assets, which enabled two representatives to conceal their misconduct,” FINRA explained in a press release. “Triad has paid restitution to some of the affected customers and FINRA has ordered Triad to pay restitution to the remaining affected customers.”
In reaching the settlements, neither Triad Advisors (which includes some 550 advisors) nor Securities America (which has about 1,700 affiliated FAs) admitted nor denied the charges.
Both of the Ladenburg Thalmann-owned IBDs said in a statement that they had “worked diligently to enhance supervision and books and records requirements for performance reports and will continue to do so. This is an industrywide issue that requires a significant investment, and we have worked with the most widely used performance report vendors to enhance their systems to help broker-dealers and advisors meet these requirements.”