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FINRA issues AWC for trade reporting failures
On September 16, FINRA accepted a Letter of Acceptance, Waiver, and Consent (AWC) from a member firm for violating trade reporting rules. According to the AWC, FINRA found the firm failed to include necessary indicators in approximately 23,000 municipal securities transactions and 155,000 transactions in TRACE-eligible securities between July 2016 and April 2021. Specifically, the firm’s electronic reporting system failed to account for transactions with affiliates where no transaction-based compensation was charged, resulting in a failure to report the Non-Transaction Based Compensation (NTBC) indicator for municipal securities transactions and the No Remuneration (NR) indicator for TRACE-eligible transactions.
The AWC noted FINRA determined the firm’s supervisory systems were not reasonably designed to ensure compliance with MSRB Rule G-14 and FINRA Rule 6730 (in violation of MSRB Rule G-27 and FINRA Rules 3110 and 2010, respectively), and lacked supervisory reviews and written procedures to check the accuracy of the NTBC and NR indicators. As a result of these findings, FINRA imposed a censure and a $150,000 fine on the firm. The firm agreed to pay the fine and waived its rights to contest the findings or the sanctions.
FINRA accepts placement agent’s AWC
On September 16, FINRA accepted a Letter of Acceptance, Waiver, and Consent (AWC) from a member firm, settling alleged rule violations made during its participation as a placement agent in a contingency offering.
The firm allegedly failed to promptly return customer funds when the minimum contingency for the offering was lowered — a material change in the offering’s terms that required prompt return of the funds — and therefore violated Section 10(b) of the Securities Exchange Act, Rule 10b-9 and FINRA Rule 2010. Additionally, FINRA alleged the firm’s supervisory system and written supervisory procedures “were not reasonably designed to achieve compliance” with the rules.
To resolve FINRA’s allegations, the firm consented to, among other things, a censure, a $20,000 fine, and remediating the identified issues within 60 days.
Broker-Dealer fined for “No Remuneration” indicators in FINRA reports
On August 27, FINRA accepted a broker dealer firm’s Letter of Acceptance, Waiver, and Consent (AWC) regarding alleged trade reporting violations and supervisory failures. According to the AWC, the respondent failed to include a required “No Remuneration” indicator on about 50,000 reports to FINRA’s Trade Reporting and Compliance Engine (TRACE) from 2016-2023, which violated FINRA Rules 6730 and 2010. FINRA further alleged that the respondent did not establish an acceptable system to achieve compliance with Rule 6730 and did not conduct supervisory reviews of TRACE reports, thereby failing to detect errors with certain indicators.
Without admitting or denying the allegations, the respondent agreed to a censure, a $175,000 fine, and an undertaking to certify within 60 days that the firm remediated the alleged issues and implemented a supervisory system designed to comply with FINRA Rule 6730.
Crowdfunding portal member expelled from FINRA Membership
On August 26, FINRA accepted a Letter of Acceptance, Waiver, and Consent (AWC) from a former funding portal member (the respondent) that acted as an intermediary for crowdfunding offerings conducted under Section 4(a)(6) of the Securities Act. The AWC outlined the respondent’s alleged violation of FINRA Funding Portal Rules 800(a) and 200(a) and FINRA Rule 8210. It asserted that FINRA began investigating one of the respondent’s offerings in January 2023 and, while the respondent initially cooperated with the investigation, the respondent subsequently “fail[ed] to respond to requests for documents and information,” despite multiple requests.
To resolve FINRA’s allegations, the respondent consented to an expulsion from FINRA funding portal membership, effective upon approval of the AWC, and acknowledged that the AWC will become part of its permanent disciplinary record. Respondent did not admit nor deny FINRA’s claims.
FINRA charges member firm with Regulation Best Interest violations
On August 5, FINRA accepted a Letter of Acceptance, Waiver, and Consent (AWC) against a member firm for three alleged violations related to the failure to maintain policies and procedures and supervisory systems in compliance with federal law. First, the firm allegedly failed to establish and maintain written policies and procedures in compliance with Regulation Best Interest (Reg BI) since June 2020. According to FINRA, this lapse led to violations of the Securities Exchange Act Rule 15l-1(a)(1) and breaches of FINRA Rules 3110 and 2010. The firm also allegedly neglected its obligations under Exchange Act Rule 17a-14, which mandates the preparation of a customer relationship summary (Form CRS). From June 2020 to July 2023, FINRA claims the firm did not have a proper supervisory system tailored to ensure compliance with its Form CRS obligations. This oversight resulted in additional violations of FINRA Rules 3110 and 2010.
Last, the firm allegedly failed to file necessary documents in a timely manner for three private placement offerings sold to retail investors between April 2020 and March 2022. These filings were allegedly made almost two years late, and only after specific requests from the regulatory authority. The firm’s supervisory system was also lacking according to FINRA, as it designated an individual no longer associated with the firm to oversee these filings, violating FINRA Rules 3110 and 2010. The firm consented to a censure and a $60,000 fine as part of the settlement. Additionally, a senior management member must certify within 60 days that the firm has remediated the identified issues and implemented compliant policies and procedures.
FINRA fines broker $165K for lack of supervisory controls and market access rule violations
Recently, FINRA accepted a Letter of Acceptance, Waiver, and Consent (AWC) against a broker providing self-directed, online brokerage services to institutional and retail customers. The broker previously received a $595,000 fine in April 2015 for allegedly failing to supervise potentially manipulative trading and failing to have reasonable market access controls and procedures. This month’s AWC was based on similar alleged conduct, finding from November 2017 to January 2020, the broker allegedly failed to establish a supervisory system prohibiting potentially manipulative trading in violation of FINAR Rules 3110 and 2010. FINRA supervision found the broker implemented a third-party surveillance system without tailoring it to the firm’s business model or order flow, assigned one trader ID number for each customer even when the account had more than one trader, and closed alerts without reasonable follow-up or investigation.
The broker also allegedly violated Section 15(c)3-5 of the Securities Exchange Act, Exchange Act Rule 15c3-5, and FINRA Rule 2010 during that same period by failing to maintain market access controls and procedures. FINRA alleged the broker did not implement a system of controls to set the appropriate credit thresholds for each customer and instead relied on clearing firms. FINRA also alleged the broker failed to provide documentation evidencing how customers’ credit controls were established or designed. Due to these violations, FINRA issued a censure, a $165,000 fine, and a certification in writing that the issues have been remedied within 90 days.
FINRA orders broker-dealer to pay over $1.4M for supervision failures
On July 29, FINRA accepted a Letter of Acceptance, Waiver, and Consent (AWC) against a full-service broker-dealer for allegedly failing to establish a supervisory system connected to non-traded real estate investment trusts from 2013 to 2017 and for allegedly failing to report 45 written customer complaints from 2015 to 2022 in violation of FINRA Rules 3110 and 2010. The respondent was found to fail supervision repeatedly. Because of these failures, the respondent agreed to a censure, a $475,000 fine, restitution of $1.05 million plus interest, and the creation of a reasonable plan of heightened supervision and a remediation certification. The respondent neither admitted nor denied these findings.
FINRA fines firm for bond markups and failure to comply with fair pricing regulations
On July 26, a financial firm accepted a Letter of Acceptance, Waiver, and Consent (AWC) from FINRA for allegedly charging unfair prices in corporate and municipal bond transactions and for allegedly failing to establish a supervisory system to comply with fair pricing rules. According to the AWC, between April 2020 and June 2023, the firm was found to have charged unfair prices on 98 bond transactions, resulting in customers paying over $112,000 in excess costs in violation of FINRA Rules 2121 and 2010 and Municipal Securities Rulemaking Board (MSRB) Rules G-30 and G-17. For example, the AWC alleged that the firm sold 250 bonds with a 1.714 percent mark-up that used an incorrect prevailing market price, which resulted in a customer paying $695 more than if the firm had used the correct prevailing market price. These failures allegedly violated FINRA Rules 3110 and 2010 and MSRB Rule G-27.
Under the AWC, the firm agreed to pay a $125,000 fine, including $110,000 for violations of MSRB rules. The firm will also provide restitution to affected customers of $112,932.02 and must implement a supervisory system that complies with fair pricing regulations.
FINRA accepts AWC for alleged failure to mark-up and mark-down information on confirmations
On July 10, FINRA accepted a Letter of Acceptance, Waiver, and Consent against a broker-dealer related to missing information on transaction confirmations. From June 2020 to September 2023, the broker-dealer allegedly failed to include certain mark-up and mark-down information on customer confirmations for 121 municipal securities transactions, in violation of Municipal Securities Rulemaking Board Rule G-15. The rule required each broker, dealer or municipal securities dealer, at or before the completion of a transaction, to send written confirmation that included the dealer’s mark-up or mark-down as both a dollar and percentage amount of the prevailing market price. FINRA alleged that the confirmations included the dollar amount but did not include the relevant percentages because fields in the clearing firm’s system were not properly selected when entering the transactions.
Separately, from September 2019 to the present, FINRA alleged the broker-dealer failed to establish or maintain written supervisory procedures in violation of Municipal Securities Rulemaking Board Rule G-27. Because the firm allegedly did not establish a supervisory system or conduct reviews to ensure that it properly confirmed the mark-ups and mark-downs referenced above, FINRA found a violation of Rule G-27. Given these findings, FINRA issued a censure, assessed a $30,000 fine, and required a registered principal of the firm to certify the firm will have remediated the issues FINRA identified within 60 days.
FINRA alleges firm failed to enforce supervisory procedures related to outside business activities
On July 12, FINRA accepted a Letter of Acceptance, Waiver, and Consent from a broker-dealer alleging that it did not enforce its written supervisory procedures related to outside business activities of its registered representatives. FINRA alleged that from April 2021 to March 2023, the broker-dealer failed to enforce its supervisory procedures while on notice that three of its employees founded and operated an independent company with two distinct lines of business (e-commerce storefronts and lead generation websites) outside of the scope of their association with the broker-dealer. As a result, FINRA alleged the broker-dealer violated FINRA Rules 3110 and 3270, and issued a censure and assessed a $60,000 fine.
While the broker-dealer maintained supervisory procedures that required certain processes for the written notification and approval of outside business activities, FINRA alleged that the firm did not follow its procedures. FINRA Rule 3110 required each member firm to establish, maintain, and enforce written procedures, and FINRA alleged the broker-dealer failed to enforce them. The broker-dealer was alleged to have also violated FINRA Rule 3270 (which prohibited employees from engaging in an OBA unless they provide prior written notice to the member firm) because it did not require written disclosure of the OBA despite repeatedly receiving new information regarding the employees’ involvement. The three employees terminated their association with the broker-dealer by March 2023; however, during the relevant time period, hundreds of customers purchased $33 million in goods and services from the employees’ OBA.