FINRA Settles With Kovack Over Failure to Supervise
From the Desk of Jim Eccleston at Eccleston Law.
The Financial Industry Regulatory Authority (FINRA) has agreed to a settlement with Kovack Securities over the firm’s failure to supervise one of its unnamed advisors who improperly recommended short-term investments in mutual fund share classes.
The Florida-based advisory firm agreed to a censure and a $210,000 fine without admitting or denying any of FINRA’s investigatory findings. According to FINRA, the unnamed advisor joined Kovack Securities in 2015 after the advisor was terminated from his previous firm for “accepting blank, signed forms from customers in violation of firm policy, short term trading in mutual funds and other customer account trading activity under firm review.” Upon joining Kovack, the advisor initiated short-term trading for Class A mutual fund shares eight client accounts, including accounts for five seniors.
Class A mutual fund shares, which typically include upfront sales charges known as “front-end loads”, are often held long-term in an effort to reduce the front-end load cost and generate a profit. In other words, frequent short-term purchases of the Class A mutual fund shares can lead to heightened costs and commissions. The unnamed advisor received a FINRA bar in 2017 for failing to cooperate with the regulator’s investigation into his conduct. FINRA further alleged that Kovack’s supervisory system, which relied on a single person to conduct daily reviews of all the firm’s trading, was not sufficiently designed to catch red flags.
Eccleston Law LLC represents investors and financial advisors nationwide in securities, employment, regulatory and disciplinary matters.
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