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Category Archives: Compliance and Supervision

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Elder Abuse Takes Another Twist and Turn

Posted in Broker-Dealer Regulation, Compliance and Supervision, FINRA Compliance, Public Customer Arbitrations, Registered Representatives, SEC Compliance

If you thought the SEC and FINRA were serious about elder issues, welcome to the Alabama, Indiana and Vermont. Each has focused on elder abuse issues. These states will have mandatory reporting to state officials in instances involving the disabled or those over 65 years of age. They will also allow advisors to cease disbursing… Continue Reading

So What’s Your Firm’s Culture?

Posted in Broker-Dealer Regulation, Compliance and Supervision, Financial Industry Trends, FINRA Compliance, FINRA Enforcement

If you cannot answer this question, you may have an issue when you have your next FINRA exam. After all, firm culture is a FINRA exam priority. Does your firm have a culture of compliance? This question only leads to another; what is a culture of compliance. For one, this is something that has to… Continue Reading

What to do about a stupid client

Posted in Books and Records, Compliance and Supervision, Financial Industry Trends, FINRA Compliance, Public Customer Arbitrations, Registered Representatives, SEC Compliance, Securities Litigation

Anyone in a professional service business, like being a stock broker, have been faced with a client who decides to make a stupid decision. But the issue we all face is when that decision results in the client losing money; who is to be held accountable. Fortunately, the law does not require you to stop… Continue Reading

To be a broker-dealer or not to be; that is the SEC’s question

Posted in Broker-Dealer Registration, Broker-Dealer Regulation, Compliance and Supervision, Financial Industry Trends, SEC Compliance, SEC Enforcement

The SEC recently announced that an equity advisory firm and its owner agreed to pay more than $3.1 million to resolve charges that they improperly engaged in brokerage activity, as well as charging fees without registering as a broker-dealer.  In other words, the firm acted like a broker-dealer but never bothered to register as one.… Continue Reading

Why a Bad Broker Is Not Like Fine Wine

Posted in Broker-Dealer Regulation, Compliance and Supervision, Financial Industry Trends, FINRA Compliance, FINRA CRD, FINRA Enforcement, Registered Representatives

Unfortunately, a bad broker does not take on the same attributes as a fine wine. Bad brokers do rarely improve with time. At least this was the recent message of Robert Ketchum, head of FINRA. But should all brokers who have any pings on their record be foreclosed from the industry? Certainly not, but what… Continue Reading

SEC Announces Third Largest Whistleblower Award

Posted in Compliance and Supervision, SEC Compliance, SEC Enforcement, Whistleblowers

Business Insurance reported late last week that the Securities and Exchange Commission will award $5-6 million to a whistleblower who provided information on securities violations that would have been “nearly impossible” for the SEC to detect on its own.  Such an award would be the third larges award ever granted to a whistleblower by the SEC.… Continue Reading

Take Away From The NSCP New York Regional Conference

Posted in Breach of Fiduciary Duty, Broker-Dealer Regulation, Compliance and Supervision, Cyber-Security, Financial Industry Trends, FINRA Compliance, FINRA Enforcement, Investment Adviser Regulation, Public Customer Arbitrations, Registered Representatives, SEC Compliance, SEC Enforcement, Securities Litigation

It was great speaking at the May 17 New York NSCP regional conference on risk issues facing firms where Ernie Badway and I discussed cyber-security, risk issues, regulatory matters, issues involving elder clients and ways compliance personnel can protect themselves.  For those of you who could not make the conference, these topics are frequently discussed… Continue Reading

NSCP Spring Conference in New York

Posted in Breach of Fiduciary Duty, Broker-Dealer Regulation, Compliance and Supervision, Cyber-Security, Financial Industry Trends, FINRA Compliance

On Tuesday, May 17, Ernie Badway and I are the keynote speakers at the NSCP Spring Conference in New York, entitled “Juggling Compliance Risks — Maintaining the Balance“. Among other things, Ernie and I will be speaking about cybersecurity, risk avoidance techniques, government regulations, elder client issues and compliance.  We hope to see you at… Continue Reading

Why Face-to-Face Meetings Are Necessary for Proper Supervision

Posted in Books and Records, Broker-Dealer Regulation, Compliance and Supervision, Financial Industry Trends, FINRA Compliance, Registered Representatives, SEC Compliance

In this day and age of instant information and overstretched supervisory personnel, you have to be careful to avoid forgoing a very useful supervisory tool. Meeting face to face with those associated persons under your supervision on a regular basis could mean the difference between routing out rogue advisors and being subject to regulatory and… Continue Reading

Why A Free Dinner Is Never Really Free

Posted in Breach of Fiduciary Duty, Broker-Dealer Regulation, Compliance and Supervision, Federal and State Criminal Activities, Financial Industry Trends, FINRA Compliance, SEC Compliance, SEC Enforcement

The SEC recently charged four investment advisors who allegedly used free dinners to entice older clients to their firm. At these dinners, these individuals allegedly provided fraudulent marketing materials to the attendees and ultimately did not invest all of the money that they were given. Granted these four advisors may just be bad apples and… Continue Reading

Why stupid clients should not ruin your business model

Posted in Books and Records, Broker-Dealer Regulation, Compliance and Supervision, Financial Industry Trends, FINRA Compliance, Registered Representatives, SEC Compliance, Securities Litigation

Unlike lawyers, especially litigators, the business model of a financial advisor is not dependent upon clients being stupid. Instead, financial advisors depend on their clients making smart decisions after full disclosure and consideration after speaking with their financial advisor. So what do you do when clients make stupid decisions? In defending brokers over the years,… Continue Reading

Who Wants To Know How OBA Disclosures Can Save Your Firm?

Posted in Broker-Dealer Registration, Compliance and Supervision, Financial Industry Trends, FINRA Compliance, FINRA Enforcement, Ponzi Schemes, SEC Compliance, SEC Enforcement

Over the years that I have defended broker-dealers and investment advisors, a more robust overview of outside business activity (OBA) disclosures would have gone a long way to disprove a number of claims. So where did these firms go wrong? The biggest issue that I have seen is a firm’s willingness to take the OBA… Continue Reading

It’s All In The Documentation

Posted in Books and Records, Broker-Dealer Regulation, Compliance and Supervision, Financial Industry Trends, FINRA Compliance, Registered Representatives, SEC Compliance

In the near 20 years that I have been defending financial advisors against claims, many of which brought by seniors, the biggest issue that I have seen is the failure to document the file in a proper manner. Why does this matter you may ask? First and foremost, the way a file is documented tells… Continue Reading

Don’t Forget This Issue When Dealing With Seniors

Posted in Breach of Fiduciary Duty, Compliance and Supervision, Financial Industry Trends, FINRA Compliance, FINRA Enforcement, SEC Compliance, SEC Enforcement

It is no secret that FINRA and the SEC are sharply focused on issues regarding elder clients, including severe disciplinary action. There is another elder “issue” that must be kept in the forefront as well; senior designations. Senior designations are “certifications” that financial advisors tag onto their other designations like CFA, etc. Such designations are… Continue Reading

So Who Thinks FINRA Is Not Serious About Elder Issues?

Posted in Broker-Dealer Regulation, Compliance and Supervision, Financial Industry Trends, FINRA Compliance, FINRA CRD, FINRA Enforcement, Registered Representatives

FINRA recently barred a registered representative and fined that person $52,270, which represented the commissions he received from the sale of debentures to 12 senior investors. So what was so bad about those transactions? For one, the high commission investments were not suitable for these elder investors. Second, there were misleading statements made to seven… Continue Reading

Don’t Forget This Data Security Risk

Posted in Books and Records, Broker-Dealer Regulation, Compliance and Supervision, Cyber-Security, Federal and State Criminal Activities, Financial Industry Trends, FINRA Compliance, FINRA Enforcement, Registered Representatives, SEC Compliance, SEC Enforcement

In a recent SEC enforcement action, a registered representative was suspended for 6 months and fined $75,000 for, among other things, forwarding confidential client information from his personal email to a former registered representative who maintained the initial client relationships. The representative also used his personal email to conduct firm business. In some instances, he… Continue Reading

Firm Culture; What Is It And Why Does FINRA Care

Posted in Broker-Dealer Regulation, Compliance and Supervision, Corporate Governance, Financial Industry Trends, FINRA Enforcement

FINRA has identified that firm culture is in its cross-hairs. But what is firm culture? Trying to figure out what’s meant by firm culture reminds of my law school days studying First Amendment law and, in particular, cases addressing pornography. A former Supreme Court Justice, Potter Stewart, seemed to get it right when he said… Continue Reading

Why Is The Cover-Up Worse Than The Crime?

Posted in Books and Records, Broker-Dealer Regulation, Compliance and Supervision, FINRA Compliance, FINRA Enforcement

A recent AWC demonstrates the old Watergate adage that the cover-up is always worse than the crime. In this AWC, FINRA suspended a registered representative for ten (10) months and fined her $15,000. Among other things, the representative entered inaccurately identified her assistant as the person placing trade orders where the assistant was the only… Continue Reading

Culture Shock: FINRA Begins Targeted Enforcement of Firm Culture

Posted in Compliance and Supervision, Financial Industry Trends, FINRA Compliance, FINRA Enforcement

As we previously blogged about (here and here), FINRA is focusing on your firm’s culture as its top priority this year.  FINRA is planning to meet with your executive, compliance, legal, and risk management teams to discuss “how your firm communicates and reinforces those values directly, implicitly and through its reward system”, and in particular, “how… Continue Reading

It is never too late to learn about risk avoidance

Posted in Broker-Dealer Regulation, Compliance and Supervision, Financial Industry Trends, FINRA Compliance, FINRA Enforcement, Investment Adviser Regulation, Registered Representatives, SEC Compliance, SEC Enforcement

Client relationships and expectations can be the source of success and liability at the same time.  Ernie Badway and I will be speaking on May 17 in New York City at a regional conference of the National Society of Compliance Professionals.  We will be speaking about risk avoidance techniques that you can use in the… Continue Reading

The bait and switch is alive and well.

Posted in Broker-Dealer Regulation, Compliance and Supervision, Financial Industry Trends, FINRA Compliance, FINRA Enforcement

FINRA has issued an investor alert involving high-yield CD offers that are really bait for the sale of a high commission investment. Apparently, FINRA has received calls on its senior hotline making it aware of a sales practice that involves enticing a client in to the office to purchase a CD and then being sold… Continue Reading

Are Regulations Regarding Elder Investors Inevitable?

Posted in Breach of Fiduciary Duty, Broker-Dealer Regulation, Compliance and Supervision, Financial Industry Trends, FINRA Compliance, FINRA Enforcement, Investment Adviser Regulation, Registered Representatives, SEC Compliance, SEC Enforcement, Securities Litigation

With the exception of those of you who have literally been asleep for the last few years, you are well-versed in the attention FINRA and the SEC are giving to issues surrounding elder investors. Among other things, there is a real focus on elder abuse. Some commentators believe that all of this attention may inevitably… Continue Reading

So, I guess it is all about supervision and risk management after all

Posted in Broker-Dealer Regulation, Compliance and Supervision, Cyber-Security, FINRA Compliance, FINRA Enforcement

Other than the non-defined “culture”, FINRA’s 2016 exam priorities are also focused on supervision and risk management. At least these categories are a bit more defined so that you are not left guessing what FINRA means. Under these broad topics, FINRA is focused on four primary areas, which include: Management of conflicts of interest, including… Continue Reading