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Regulation and Compliance > Federal Regulation > FINRA

FINRA Enforcement: Monex Fined for Letting Unregistered Reps Advise Clients in Mexico

By Marlene Y. Satter

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Among recent enforcement actions, FINRA sanctioned and fined a number of firms for everything from failure to register and supervise foreign personnel to statement failures and other compliance violations.

FINRA Sanctions Monex Securities $1.3 Million Over Foreign Reps

FINRA has announced that it has ordered Monex Securities Inc. to pay $1.1 million in disgorgement of commissions, plus interest, obtained by unregistered foreign individuals who sold securities on the firm’s behalf. In addition, the agency fined Monex $175,000 for failing to register those foreign representatives and for related supervisory deficiencies that spanned  two and a half years.

Also, Jorge Martin Ramos Landero (Ramos), Monex’s president and chief compliance officer, was suspended from acting in a principal capacity for 45 days and fined $15,000.

According to FINRA, Ramos executed an agreement on behalf of Monex with its parent company in Mexico that allowed numerous employees to conduct securities business on Monex’s behalf by, among other things, collecting client information needed to open accounts, making investment recommendations to clients and transmitting orders.

Monex paid these people transaction-related compensation for this work, despite the fact that none of them was registered in any capacity with FINRA. Ramos and Monex also failed to establish, maintain and enforce supervisory systems and written procedures to ensure compliance with applicable securities laws and regulations.

While Monex and Ramos have neither admitted nor denied the charges, both consented to FINRA’s findings.

Morgan Stanley Censured, Fined $800,000

Morgan Stanley Smith Barney LLC was censured by FINRA and fined $800,000 on findings that it failed to issue account statements and confirmations for numerous global stock plan services group (GSPS) customer accounts and transactions.

According to FINRA, when the firm did issue GSPS account statements and confirmations, they failed to disclose required information including whether the firm acted in an agency or principal capacity, and the market value of the securities so as to provide the dollar amount of the opening and closing account balances.

In addition, the firm failed to indicate whether certain option transactions, which were processed through one of the firm’s programs and two of the firm’s exception trade processing systems, were opening or closing transactions.

FINRA said that the firm failed to establish, maintain and enforce a reasonable supervisory system and written procedures to achieve compliance with applicable customer account statement and transaction confirmation rule requirements. Those failures went on for about 4½ years, which meant that the deficiencies affected millions of customers and transactions.

Without admitting or denying the findings, the firm consented to the sanctions. Failures, Violations Cost Merrill $300,000

In two separate run-ins with FINRA, Merrill Lynch was censured and paid a total of $300,000 in fines, $250,000 of which was for supervisory failures and $50,000 of which was for failure to prevent trade-throughs of protected quotations in NMS stocks.

In the first instance, the firm was also required to revise its written supervisory procedures (WSPs) on findings that findings that its supervisory system was inadequate to comply with applicable laws concerning detection of orders for purchase and sale of securities that resulted in no change of beneficial ownership.

FINRA found that the firm’s supervisory system failed to find and review trades from customer orders that did not include the value “USD” in the currency indicator field. That left a gap in the firm’s surveillance system resulting in the firm’s failure to review millions of shares’ worth of trades across 83 customer accounts in its wash trade surveillance program. As a result, wash transactions were carried out undetected by the firm.

In the second, FINRA found that the firm failed to establish, maintain and enforce written policies and procedures to prevent trade-throughs of protected quotations in NMS stocks that do not fall within any applicable exception, and if relying on an exception, are reasonably designed to assure compliance with the terms of the exception.

According to FINRA, the firm failed to make sure that intermarket sweep orders (ISOs) it routed met the definitional requirements set forth in Rule 600(b)(30) of Regulation NMS.

In both cases, the firm neither admitted nor denied the findings, but consented to the sanctions.

— Check out SEC to Conduct ‘Presence Exams’ on Never-Examined Advisors on ThinkAdvisor.

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