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FINRA Enforcement: CEO Used Company Money to Buy His Relatives’ Artwork

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The Financial Industry Regulatory Authority recently sanctioned Ameriprise for failures to deliver account records to clients at account openings; another firm for supervisory failures regarding charitable and business expenses; and another for violations surrounding the sale of unit investment trusts (UITs).

FINRA: CEO Used Company Money to Buy Relatives’ Art

Banca IMI Securities Corp. was censured by FINRA and fined $250,000 after the agency found that the firm failed to have an adequate supervisory system or WSPs to supervise charitable and business expenses against conflicts of interest.

According to the agency, there were also inadequate procedures to supervise registered principals, including the firm’s then-CEO, or to have any supervisory review of the CEO’s delegated authority with respect to expenses. As a result, the CEO spent nearly $900,000 of the firm’s funds to, among other things, buy certain works of art created and sold by his relatives and fund charitable donations to entities with which he had a personal connection or interest.

The firm also employed a registered representative as chief administrative officer without the appropriate registration, and failed to ensure that he qualified as a general securities principal within 90 calendar days from his association with the firm. Instead, it permitted him to function as a principal without having passed the appropriate exam. Despite him being registered by the firm as a general securities principal, he did not get his Series 24 license until nearly a year after joining the firm in a supervisory capacity.

Without admitting or denying the findings, the firm consented to the sanctions.

Ameriprise Fined Over Unsent Account Records

FINRA censured Ameriprise Financial Services Inc. in Minneapolis and fined the firm $150,000 on findings that it failed to create and send to approximately 219,000 customers an account record within 30 days of the account opening.

According to the agency, the firm realized the failure when it was unable to locate some account records FINRA requested during an examination. The firm determined that the failure resulted from the sequential timing of two automated systems, which work together to identify new accounts requiring the delivery of account records within 30 days of the opening of an account.

The firm created the account records, but only sent them to customers if the systems ran in a particular sequence; otherwise, no records were sent to the customer. Until this was discovered, the firm was unaware that it had to run the systems in the right sequence in order to identify those new accounts.

Of the approximate 219,000 account records, approximately 130,000 were eventually delivered to customers because of a separate triggering event, such as a change in name/address, account objective or the passage of 36 months. The firm did not mail an account record to approximately 10,893 account holders because the account was closed, the customer was deceased, or the account had an undeliverable mail address on record. Once the problem was discovered, the firm delivered the remaining account records — approximately 78,000 — to customers in two mailings.

FINRA also found supervisory system and written supervisory procedures failures that allowed the records failures to occur and to continue.

The firm neither admitted nor denied the findings but consented to the sanctions.

Firm Fined, Censured on UIT Failures

Coburn & Meredith Inc. was censured by FINRA and fined $75,000, as well as ordered to pay $203,097.47, plus interest, in restitution to customers over violations with respect to the sale of UITs. A lower fine was imposed after considering, among other things, the firm’s revenue and financial resources.

According to the agency, the firm failed to identify and apply sales charge discounts to certain customers’ eligible purchases of UITs. That resulted in customers paying excessive sales charges of approximately $203,097.47.

FINRA found that the firm failed to have a supervisory system and WSPs that would ensure customers got sales charge discounts on all eligible UIT purchases. In addition, it failed to maintain any WSPs with respect to identifying UIT transactions eligible for those discounts. Instead, the firm relied on its registered representatives to see to it that customers got discounts, although it did not train them or their supervisors to identify and apply those discounts.

In addition to the fine and restitution, the firm is required to submit a report to FINRA that explains how systems and procedures have been corrected to address the violations.

The firm neither admitted nor denied the findings but consented to the sanctions.

— Check out Morgan Stanley to Pay $34 Million to HSN Founder’s Estate on ThinkAdvisor.