A broker-dealer and its principal settled FINRA charges for failures to sufficiently supervise the suitability of its registered representatives' trading in customer accounts, honor customer requests to transfer their accounts, and timely file amendments to Forms U4 and U5 to disclose customer arbitrations.
In a Letter of Acceptance, Waiver and Consent, FINRA found that the broker-dealer's supervisory system was deficient in its written supervisory procedures, which did not provide adequate guidance as to what factors might indicate unsuitable trading or what should be done when possibly unsuitable trading activity was observed. FINRA alleged that these deficiencies led to its registered representatives making unsuitable recommendations and excessively trading customer accounts, resulting in the firm and principal's violation of FINRA Rules 3110 ("Supervision") and 2010 ("Standards of Commercial Honor and Principles of Trade").
FINRA also found that the firm and principal interfered with customers' requests to transfer their accounts in connection with the departures of the customers' registered representatives, in violation of FINRA Rules 2140 ("Interfering with the Transfer of Customer Accounts in the Context of Employment Disputes") and 2010. Additionally, FINRA determined that the broker-dealer failed to timely file amendments to Forms U4 and U5 to disclose the filing and resolution of customer arbitrations, in violation of Article V, Sections 2(c) and 3(b), of the FINRA By-Laws and FINRA Rules 3110(a) and 2010.
To settle the charges, the broker-dealer agreed to (i) a censure, (ii) a $350,000 fine, (iii) pay $1,246,471 in restitution and (iv) hire an independent consultant to conduct a comprehensive review of the broker-dealer's compliance with FINRA Rule 3110 and implement the consultant's recommendations. The principal agreed to (i) a 15-business-day suspension in all capacities, (ii) a three-month suspension in all supervisory capacities, (iii) a $15,000 fine and (iv) to complete 20 hours of continuing education regarding supervisory responsibilities.
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