FINRA disciplinary action update #6

Disciplinary decisions issued March 24 – 30, 2023.

Securities representative suspended and fined for the alleged unauthorised exercise of discretionary authority over accounts

Codes shared with a retired representative and correctly prepopulated by the firm’s systems were altered under the mistaken belief that this was done with the retired representative’s approval. A higher commission was paid to the product and securities representative as a result of these code changes and the retired representative received less than was due to him under a joint production agreement between the parties. Morgan Stanley was forced to pay restitution to the retired representative to make him whole after the loss sustained as a result of the code changes.

FINRA Rule 2010
FINRA Rule 3260
NASD Rule 2510

Former securities representative suspended and fined for allegedly participating in private securities transactions without prior approval from his employer

The firm’s department responsible for reviewing and approving outside business requests allegedly did not handle the request in question in a timely fashion and did not effectively communicate its decision refusing it to the requester.

FINRA Rule 3280
FINRA Rule 2010

Baker Tilly Capital censured and fined for allegedly permitting material changes to private placement offerings without terminating these

Exchange Act Rule 10b-9 requires the termination of an offering following a material change. All investor funds must be returned to the investors following termination and investors cannot waive this requirement even when they consent to the changes.

Exchange Act Rule 10b-9
FINRA Rule 2010

Former customer service representative barred for allegedly refusing to produce documents and information

FINRA Rule 8210 

Securities representative suspended and fined for allegedly using WhatsApp to communicate with firm customers regarding securities-related business

The messages included investment recommendations, client orders and market conditions despite the fact that WhatsApp was not an electronic communications channel approved by the firm.

Exchange Act Rule 17a-4(b)(4)
FINRA Rule 4511

Newbridge Securities Corporation censured and fined for alleged supervisory and due diligence failures

This settlement is connected with the sale, by Newbridge, of LJM, a high risk alternative mutual fund. According to FINRA the firm’s supervision of the recommendations made by its representatives in connection with LJM and alternative mutual funds in general was not reasonable. FINRA’s investigation found that the firm:

  • lacked the system and procedures to effectively assess a new mutual fund and determine whether heightened due diligence on it might be appropriate;
  • did not provide adequate guidance or training to representatives on the risk and features of alternative mutual funds and did not have supervisory procedures for this type of product;
  • failed to modify its trade review system to accommodate the assessment of the suitability of alternative mutual funds;
  • did not review the fund’s investment trading strategy or impose any limitations on the sale of the fund.

In addition to the censure and fine a restitution of $114k has been ordered to be paid to the affected customers.

FINRA Rule 2010
FINRA Rule 2111 
NASD Rule 3010
FINRA Rule 3110

NatAlliance Securities censured and fined for alleged supervisory and recordkeeping failures

FINRA’s investigation found that the firm did not have an adequate system in place to supervise the marking to market of bonds by traders. A trader at the firm inaccurately recorded a significant number of daily marks corporate bonds in his trading book, which led to the overstatement of his portfolio by more than $2.6m.

Trader A’s supervisor was responsible for reviewing the marking to market and although he was allegedly aware of discrepancies between the marks and market values did not follow-up on this or escalate the issue. The supervisor has also incurred a suspension and fine as part of the AWC.

Key lessons from the case.

An adequate supervisory system for end-of-day bond valuations should comprise of:

  • a systematic way of identifying and flagging price discrepancies;
  • traders should be required to review marks daily;
  • supervisory review of the marking should be conducted at regular intervals.
Exchange Act Section 17(a)
Exchange Act Rule 17a-3
Exchange Act Rule 17a-5
FINRA Rule 2010
FINRA Rule 3110
NASD Rule 3010
FINRA Rule 3110 
FINRA Rule 4511
Unless otherwise noted all respondents accepted and consented to FINRA’s findings without admitting or denying them.