FINRA’s Quarterly Disciplinary Review Reminds Registered Reps of Important Duties

Posted on April 21st, 2014 at 9:00 AM

In its April, 2014 Quarterly Disciplinary Review, FINRA highlights eight types of recent disciplinary actions involving misconduct by registered representatives. Let’s examine the more important categories in terms of what concerns FINRA.

The first category relates to registered representatives who falsely provide a signature guarantee. For this category, FINRA chooses a recently settlement matter involving a registered sales assistant who falsely guaranteed the authenticity of a customer’s signature on three wire transfer requests. The sales assistant was required to obtain a written transfer request with either a notarized signature or a guaranteed signature. Moreover, the firm required the customer to sign in the presence of authorized firm personnel and to present a photo ID. Unfortunately, that procedure was not followed. Worse, it was an imposter who hacked one of the registered representative’s customers’ email accounts. The imposter then proceeded to make three transfer requests, all over email, and based upon the false representations each time by the sales assistant that firm protocol had been followed. The sales assistant received a two month suspension and a fine.

The second category relates to failure to disclose civil judgments or liens on Form U-4. FINRA selects a settle matter to emphasize the importance of disclosing in a timely manner all unsatisfied judgments and liens on the CRD (the Central Registration Depository), a database containing employment and regulatory information maintained by FINRA and state securities regulators. In that matter a registered representative obtained an unsatisfied judgment against him, and he delayed filing a U-4 amendment to the CRD for one year. Worse, he then received 3 more judgments yet failed to disclose them at all.  FINRA not only fined and suspended the registered representative for three months, but it also found the misconduct to be “willful”, which carried with it the harsh penalty of being “statutorily disqualified” from the securities industry.

The third category relates to selling away and selling securities without proper registration. FINRA focuses on a registered representative whose firm chose to prohibit private securities transactions, whether or not compensation was paid for effectuating that transaction. The rep facilitated two private sales of limited liability interests, receiving compensation, and without providing notice to or receiving prior approval from the firm.  FINRA and the registered representative entered into a settlement whereby the rep was fined and suspended for 100 days.

The fourth category relates to exercising discretion without authorization or approval. In this settled matter the rep had two customers who periodically discussed with him their account strategies and did give him verbal authorization to exercise discretion in their accounts. However, the customers did not give him written authorization, as required, and he did not provide notice to or receive prior approval from his firm, also as required. FINRA suspended the registered representative for 10 days and fined him $5,000.

The fifth category relates to forging customer names and converting customer funds. In the settled matter that FINRA discusses, the rep did those things on four occasions using bank withdrawal slips. The customer was not present, was unaware and did not authorize any withdrawals. FINRA barred the registered representative from the securities industry in all capacities.

The sixth category relates to borrowing customer funds without approval. FINRA highlights several issues with this category. First, firms typically prohibit a registered representative from borrowing money from customers. In this settled matter, the rep did so. Subsequently, the rep borrowed money from non-customer creditors. FINRA found reporting violations when the rep negotiated those debt payments yet failed to update his Form U-4 to reflect that “compromise for the forgiveness of outstanding debt.” When the rep added icing to the cake by providing “inaccurate testimony” to FINRA, the sanctions were harsh: a 2 year suspension and a fine.

Finally, a seventh category can be described as cooperation with the regulators. Specifically, FINRA discusses a settled case involving a rep’s failure to appear to provide “On The Record” testimony (an “OTR”) as well as another settled matter involving a rep’s refusal to respond to FINRA’s requests for information. Perhaps no surprise, in each instance the reps were barred from the securities industry in all capacities. 

Those examples highlight FINRA’s regulatory concerns. In each quarterly review, FINRA attempts to send a message in order to deter reps from similar misconduct. That reading is worthwhile!

Related Attorneys: James J. Eccleston


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Thank you for your professional assistance with this matter. You are very good at what you do.

John T.


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