Close Close

Regulation and Compliance > Federal Regulation > FINRA

5 Brokers Who Crossed FINRA in Q4

Your article was successfully shared with the contacts you provided.

Each quarter, the Financial Industry Regulatory Authority shares details on recent disciplinary actions involving misconduct by registered representatives.

In the quarter ended Dec. 31, several advisors were fined $5,000 or more in cases involving outside activities, personal email, and bad behavior that involved everything from using fake names for credit cards to lying under oath.

The sampling of cases includes settled matters and decisions in litigated cases handled by the National Adjudicatory Council and the Securities and Exchange Commission, and the details highlight specific conduct that violates FINRA and SEC rules.

Read on to learn more about the five brokers who received the worst regulatory penalties from these organizations over the past three months, listed in descending order. 

5. Using an Outside Email Account

In the final quarter of 2016, FINRA resolved issues related to an advisor who used his personal email account to interact with a client about firm-related business and to settle a client complaint without letting his firm know about the matter.

The advisor conducted these email activities in 2014. In addition, the registered rep failed to keep copies of the emails.

By using personal email, the advisor prevented the broker-dealer “from discharging its supervisory and recordkeeping obligations,” FINRA says.

Furthermore, by using a personal email account for securities business, the advisor violated FINRA Rule 2010 (ethical standards).

Two years ago, the rep became aware that “a customer was unhappy with commissions charged in the customer’s account … and to appease the customer and to reimburse the customer for commissions …  the representative paid the customer $1,000 by check … without the firm’s knowledge or consent.”

For this misconduct, FINRA suspended the rep for two months and fined him $7,500.

4. Failing to Update Registration Info

FINRA settled a matter involving a registered representative who failed “to timely disclose a compromise with a creditor” on the rep’s Uniform Application for Securities Industry Registration or Transfer Form — also knows at the U4 form.

In January 2014, the rep reached a compromise with a creditor and agreed to pay $175,000 in connection with a FINRA arbitration award.

“The compromise with the creditor required disclosure on the representative’s Form U4 beginning 30 days after learning of the facts and circumstances giving rise to the amendment; however, he did not make the required disclosure on his Form U4 until more than two years later, in May 2016,” according to FINRA.

This behavior specifically violated Article V, Section 2(c) of FINRA’s by-laws (application for registration) and FINRA Rules 1122 (filing of misleading information as to membership or registration) and 2010 (ethical standards).

For this misconduct, FINRA suspended the advisor for three months and fined him $10,000.

3. Engaging in Outside Business Activities

FINRA says it has resolved the case of a registered rep who conducted undisclosed outside business activities and intentionally provided his firm’s business credit card company with false information in order to get 25 business credit cards.

In March and April 2015, the rep obtained a business credit card account under a fake business name. He opened the account by using false information including a fake company name and fictitious revenues, profits and employees.

Later, the rep was able to obtain 24 credit cards, which were sent to the advisor at his broker-dealer. “The firm intercepted the cards before the cards were activated,” according to FINRA.

The rep obtained the cards for a friend who worked in the ticket resale business.

“Specifically, the representative’s friend purchased and resold concert and sporting event tickets and intended to use the cards to bypass event ticket purchase limits,” the regulatory group explained.  

“In return for obtaining the cards, the representative expected to receive credit card reward points that would be generated from his friend’s purchases on the cards,” it added.

By conducting an outside business activity and not letting his firm know about it, the representative violated both FINRA Rule 3270 and 2010.

For this misconduct, FINRA suspended the rep for 18 months and fined him $10,000.

2. Conducting Private Securities Transactions

The regulatory group finalized a settlement with an advisor who participated in about 40 private securities transactions without providing proper notice to his firm from 2010 to 2015.

“In total, 27 people, most of whom were firm customers, invested over $3.5 million through the representative,” FINRA said.

In one case, the rep obtained his firm’s permission to act as a business planning consultant to an entity founded by two clients. However, he “exceeded the scope of the firm’s permissive involvement with the entity by soliciting the firm’s customers to purchase the entity’s 13% ‘senior notes.’ ”

In another instance, the founders of the entity that issued the senior notes bought a distressed real estate development, which they financed by issuing 12% senior notes. The rep recommended to two clients that they buy the notes for a total of $750,000.

In the third instance, the rep was involved in undisclosed private securities transactions by “facilitating the development project investors’ conversion of their senior notes to notes issued through the entity’s parent company.”

This misconduct violated NASD Rule 3040 (regulating private securities transactions) and FINRA Rule 2010 (ethical standards).

For this misconduct, FINRA suspended the rep for two years and fined him $20,000.

1. Misleading FINRA and Directing an Employee to Mislead FINRA

The regulatory group says that it settled a matter involving an advisor who directed an employee “to mislead FINRA during on-the-record testimony and then repeated the same falsehoods during her own on-the-record testimony.

In 2013, the rep tried to transfer an elderly client’s assets to her firm and directed an employee to obtain the client’s brokerage account statements from the customer’s existing firm.

“To accomplish this, the employee called the existing firm and claimed that she was a relative of the customer in order to obtain copies of the customer’s account statements. The existing firm ultimately provided the son with the requested documents after determining that he had a valid power of attorney to act on his mother’s behalf,” FINRA explained.

After the advisor learned FINRA was investigating the employee’s claims that she was the customer’s relative, the representative told the employee “to testify to FINRA that the employee had only stated that she was ‘like’ the son’s daughter during the telephone calls with the existing firm.”

The rep also repeated this false claim when she delivered her own on-the-record testimony with FINRA. When the she testified, she knew the employee had falsely claimed to be the client’s relative.

“By instructing the employee to mislead FINRA during the on-the-record testimony, and by making misleading statements during her own on-the-record testimony, the representative violated FINRA Rules 8210 (provision of information, testimony and documents) and 2010 (ethical standards).

For this misconduct, FINRA permanently barred the representative from associating with any FINRA member in any capacity.

— Check out FINRA Awards Rep $417,000 Over Firing on ThinkAdvisor.




© 2023 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.