Securities principal and CCO barred for allegedly misusing and converting customer funds
The CCO who is also CEO and CFO of Integrity Brokerage converted funds in two customer accounts, transferring them to a firm account without knowledge or authorization of the customers.
Two of the transfers were made in response to FINRA investigations connected to the accounts in question. And although the parties agreed on the facts of the alleged misconduct, the CCO challenged the appropriateness of a bar, arguing that mitigating circumstances existed justifying the imposition of a lesser sanction.
The hearing panel disagreed, pointing to aggravating circumstances in the case including:
- a lack of a genuine acceptance of responsibility and remorse;
- fully intentional rather than negligent, spur-of-the-moment, impulsive, or thoughtless acts;
- actions taking place over an extended period;
- an attempt to mislead customers and conceal misconduct.
The panel also rejected the CCO’s claims that the facts and circumstances surrounding the misuse and conversion of funds were in any way mitigating.
The panel concluded that “a bar is the only remedial sanction” that can justifiably be imposed given the fact that conversion “is one of the most grievous offenses that can be committed by a securities industry professional.”
This is an OHO decision and not an AWC.
FINRA Rule 2010
FINRA Rule 2150
Percival Financial Partners censured and fined and its securities principal suspended and fined for allegedly conducting business without maintaining the firm’s minimum required net capital
The securities principal, who is also serving as the CEO, CCO, CFO and CTO of the firm, was aware of the firm’s net capital deficiency, but failed to suspend the firm’s securities business. Despite the capital deficiencies he also continued to make regular capital withdrawals from the firm.
The firm and the principal failed to file the required notices for the firm’s net capital deficiencies for certain periods. As a result the firm filed inaccurate FOCUS and annual audit reports and maintained inaccurate books and records.
The firm was also suspended from FINRA membership as a result of failing to file its 2022 annual audit report before the date stipulated by FINRA. Although the suspension was acknowledged the principal “permitted Percival to continue to conduct a securities business during the suspension.”
In addition to the suspension and fine the principal will be required to requalify prior to acting in that capacity with any FINRA member in the future.
FINRA Rule 2010
FINRA Rule 4511
SEA 1934 Rule 17a-3
SEA 1934 Rule 17a-5
SEA 1934 Rule 17a-11
Securities principals and securities representative suspended and fined for allegedly submitting orders for new issue municipal bonds without disclosing the orders were for their firm’s dealer account
The two principals also failed to reasonable respond to red flags that indicated the firm was obtaining improper allocations of new issue municipal bonds and failed to investigate or address the representative’s actions.
MSRB Rule G-11
MSRB Rule G-17
MSRB Rule G-27
JP Morgan Securities censured and fined for alleged untimely or inaccurate Regulation M-related notifications connected to securities distributions
The inaccuracies included not:
- identifying all distribution participants;
- identifying distribution participants as FINRA members;
- including the correct CRD numbers of member firms
The issues stemmed from a transition to a new proprietary deal management system.
The firm also submitted a number of untimely trading notifications, submitted some inaccurate trading notifications, and failed to file a single trading notification.
The firm’s supervisory system and procedures to verify the accuracy of the required notifications was inadequate.
FINRA Rule 2010
FINRA Rule 3110
FINRA Rule 5190
SpeedRoute censured and fined for alleged financial risk management and AML program shortcomings
The firm failed to establish, document and maintain reasonably designed risk management controls and supervisory procedures intended to limit the risks connected with its market access activity.
It also failed to implement reasonable credit controls and procedures including:
- SOQ and SONV controls and limits;
- single order price deviation control;
- ADTV controls; and
- maximum order rate and duplicate order rate limits.
The firm did not have in place a supervisory system reasonably designed to detect and investigate potentially manipulative trading. Shortcomings included:
- unreasonably designed parameters to detect and prevent wash sales, layering, and spoofing;
- a failure to allocate sufficient or adequately experienced resources to review surveillance alerts;
- adopting unreasonably narrow sampling methods when determining the alerts that needed to be reviewed;
- not reasonably investigating the alerts that were reviewed including not taking reasonable action to assess or confirm responses; and
- not describing the automated third-party surveillance system or the review of alerts generated by this system in its WSPs.
The firm’s AML compliance program was not reasonably designed because the firm:
- did not have in place a reasonable system to detect suspicious trading in low-priced securities;
- failed to detect, investigate and respond to suspicious trading in at least 15 low-priced securities;
- failed to establish a reasonable due diligence program for FFI correspondent accounts; and
- failed to conduct reasonably designed tests of its AML program.
FINRA Rule 2010
FINRA Rule 3110
FINRA Rule 3310
FINRA Reg Notice 19-18
NASD NTM 02-21
Former securities representative suspended for allegedly borrowing funds from a customer
The loan was repaid in full.
FINRA Rule 2010
FINRA Rule 3240
Securities representative suspended and fined for alleged unsuitable recommendations to customers
The customers had moderate to moderately aggressive risk tolerances and, given this and their investment profiles, the high risk and illiquid bonds recommended were unsuitable.
FINRA Rule 2010
FINRA Rule 2111
FINRA Rule 4511
SEC Reg BI
SEA 1934 Rule 15l-1
Securities representative suspended and fined for allegedly participating in an outside business activity without notice to or approval from his firm
FINRA Rule 2010
FINRA Rule 3270
American Trust Investment Services censured and fined for alleged Reg BI shortcomings and other compliance failings
The shortcomings were in connection with bonds that were considered speculative, involved a high degree of risk, were illiquid and were only suitable for customers with substantial financial resources and no need for liquidity.
The company issuing the bonds defaulted on its obligations and filed for bankruptcy.
The firm failed to reasonably supervise its registered representatives’ recommendations to retail customers to purchase these bonds. As a result the bonds were recommended to eight customers who had moderate or moderately aggressive risk tolerances and for whom the investment was unsuitable.
In addition the firm failed to establish and maintain reasonably designed policies and procedures, including WSPs, that would ensure compliance with its Reg BI obligations. The firm’s policies discussed Reg BI in general terms only without prescribing any procedures or providing guidance on how to comply with its requirements.
The firm also:
- sold unregistered securities without an applicable exemption;
- failed to establish, maintain or enforce a reasonable supervisory system related to the sale of such unregistered securities;
- failed to conduct reasonable background investigations of personnel it sough to register with FINRA;
- failed to maintain a reasonable supervisory system for the review and supervision of outside business activities; and
- failed to conduct OSJ and branch office inspections in 2021 and 2022.
FINRA Rule 2010
FINRA Rule 2111
FINRA Rule 3110
SEA 1934 Rule 15l-1
SEC Reg BI
Former products representative barred for allegedly failing to provide documents requested
FINRA Rule 2010
FINRA Rule 8210
Former securities principal charged with allegedly failing to provide documents and information and appear for in-person testimony
This is a complaint and not an AWC.
FINRA Rule 2010
FINRA Rule 8210
Regulus Financial Group censured and fined for allegedly failing to disclose its own and its control affiliate’s disciplinary history in Form CRS
The firm was cautioned by FINRA that its responses in its initially filed form were incomplete or misleading.
Despite the warning the firm failed to disclose in the form that it did have prior reportable or disciplinary history. And it failed to update this form when one of its control affiliates agreed to the imposition of legal or disciplinary history.
FINRA Rule 2010
SEA 1934 Rule 17a-14
TradeUP Securities (formerly Marsco Investment Corporation) and US Tiger Securities censured and fined for alleged AML program shortcomings
The AML programs at the firms were not reasonably designed to detect and ensure the reporting of suspicious transactions.
US Tiger’s procedures shifted the responsibility for suspicious transaction reviews and reporting to its clearing firm, which had never contractually committed to such work and did not perform it.
Even had such work been completed, US Tiger did not identify what exception reports would be reviewed and how these would be investigated or documented.
The firm relied on a manual review of its daily trade blotter along with two daily reports generated from its order management system in order to detect and review potential suspicious activity in its securities trading. These did not identify any specific patterns for review. When enhanced the reports led to a significant number of false positives and, as a result, were not reviewed by the firm.
In addition the firm reviewing outgoing securities and money movements as required, but failed to review corresponding incoming movements.
After March 2021 US Tiger transferred its foreign financial institution omnibus accounts to TradeUp.
TradeUP was to monitor for suspicious activity by conducting daily manual reviews of the firm’s trade blotter and by reviewing the resulting exception reports. Its procedures did not describe how the firm would review, detect or investigate potential red flags.
The manual reviews did not identify suspicious activity patterns for review and the exception reports the firm had access to generated significant false positives and had significant shortcomings in terms of identifying and reviewing potentially suspicious trading patterns.
The firm’s procedures also failed to:
- provide guidance on the acceptance of deposits of low-priced securities, nor who should review such deposits, or what due diligence they should conducts; and
- include appropriate risk-based procedures for conducting ongoing customer due diligence.
Both firms failed to establish due diligence programs specific to foreign financial institution correspondent accounts designating that as low-risk (US Tiger) or not assessing the risk posed by such accounts (TradeUP).
The firms both made use of an electronic instant messaging and document sharing platform made available to them by their parent entity. The platform was used by the employees of the firms to communicate internally, between the firms as well as with foreign affiliates. The platform include an automated deletion feature that deleted messages “within weeks of their being sent.”
Neither firm performed supervisory reviews of the communications or documents on this platform nor did they take steps to retain these as required.
TradeUP has also agreed to an undertaking requiring it to retain an independent consultant to conduct a comprehensive review of the relevant aspects of its compliance program. The firm will be required to adopt and implement the recommendations made by this review.
FINRA Rule 2010
FINRA Rule 3110
FINRA Rule 3310
FINRA Rule 4511
FINRA Reg Notice 19-18
FINRA Reg Notice 21-03
NASD NTM 02-21
SEA 1934 Rule 17a-4
| Unless otherwise noted all respondents accepted and consented to FINRA’s findings without admitting or denying them. |
