On July 2, 2019, FINRA announced that it had imposed sanctions on a broker-dealer ("Dealer") for supervisory failures.4 The sanctions, which totaled greater than $880,000, included approximately $558,000 in restitution to customers whose accounts were excessively traded by a former registered representative of the firm who was previously barred by FINRA in a separate disciplinary action.
FINRA determined that between January 2012 and March 2017, Dealer failed to review certain automated trade alerts for its registered representatives' trading activity, including alerts identifying excessive trading. Dealer failed to detect that the former representative excessively traded securities in the accounts of 14 customers, which generated more than 150 alerts for potentially excessive trading. FINRA found that Dealer received but did not review the alerts. In particular, the former registered representative excessively traded securities in accounts of two retired women, one of whom had a net worth of less than $500,000 and the other having a net worth of less than $1 million.
Dealer's actions constituted a failure to establish and maintain a supervisory system, and a failure to enforce written supervisory procedures, as required by FINRA Rule 3110. The excessive trading in customers' accounts also violated FINRA Rule 2111, in that Dealer did not have a reasonable basis to believe that a recommended securities transaction was suitable in light of the customer's investment profile, and a series of recommended securities transactions, when taken together, were excessive, the level of trading was inconsistent with the customer's investment profile and the Dealer exercised control over the customer's account.
This serves as a reminder that FINRA remains focused on excessive trading violations.
4 The FINRA action can be found at: https://bit.ly/2GBHqdK.
Originally published in REVERSEinquiries: Volume 2, Issue
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