The last quarter of 2022 saw FINRA continue its focus on communications compliance. Four brokers and a compliance officer faced disciplinary action for a range of breaches of their approach to supervision and an inability to retrieve phone records.
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At a high level the disciplinary actions resulted in censures, a 40 day prohibition, fines totalling over $2m, restitution of nearly $50,000 and wide ranging remedial actions.
A broker was found to have failed to establish, maintain, and enforce a reasonable supervisory system, including WSPs, to review electronic communications that its registered representatives sent and received. As a result, in December 2022 the firm was censured and fined $45,000. The firm was also mandated to undertake remedial action, certified by an executive, which required a retrospective review of emails sent and received during a five year period to detect any FINRA rule violations.
A broker was found to, from May 2017 to March 2021, have failed to timely or completely produce certain phone records in response to requests in ten separate FINRA investigations. In certain responses, the firm also inaccurately represented to FINRA that phone records older than 18 months were not available, even though that was not the case. The firm did not promptly alert FINRA once it learned of its production failures. As a result, in December 2022, the firm was censured, fined $1.1m and required to undertake remedial action.
A compliance officer was found to have failed to reasonably supervise the sales practices of two registered representatives. The first breach was a failure to reasonably supervise recommendations made by Representative A. The second breach was a failure to reasonably investigate red flags that Representative B was using an external email address to transmit securities-related documents to the firm’s customers, or ensure those communications were retained. As a result, in December 2022, the compliance officer was subject to a 40 business-day suspension from associating with any FINRA member in all principal capacities and fined $5,000.
Two brokers were found to have failed to reasonably supervise two registered representatives who engaged in a scheme to overcharge commissions to seven institutional customers,
The firm prohibited representatives from making misleading statements in communications with the public and surveilled communications to detect potentially misleading statements. The firm's communications surveillance team reviewed the communications flagged by its surveillance system but failed to examine the attached confirmations where representatives were misrepresenting commissions and misstating the share price.
As a result of a number of findings, in October 2022, the brokers were censured, fined a combined total of $1.1m, required to make restitution of $48,574.79 plus interest and required to certify that they had completed a review of their policies, procedures, and systems regarding the monitoring of electronic communications.
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