Articles Posted in FINRA AWC

00025601-300x166
FINRA recently published an AWC entered into with Richard L. Langer, a registered representative with Planner Securities LLC.  FINRA accused Langer of violating FINRA Rules 2210 and 2220.  FINRA Rule 2210 governs communications by registered representatives with the public and FINRA Rule 2220 sets forth requirements with respect to options-related communications.

The review of Langer’s communications originated with a cycle examination conducted by FINRA Member Supervision.  According to FINRA, between January 2016 and November 2019, Langer maintained a public Facebook page for an investment club he operated. Langer authored 20 posts on the Facebook page regarding the performance, investment returns, industry standing, and purported successes of the investment club and a separate hedge fund at which Langer traded.

For example, on January 9, 2018, Langer posted:

00025601-300x166
On August 23, 2022, FINRA published an AWC reflecting a settlement with ViewTrade Securities, Inc.  The AWC alleges that ViewTrade failed to establish and implement written AML policies and procedures that could reasonably detect and cause the reporting of suspicious transactions in violation of FINRA Rule 3310.  FINRA Rule 3310 requires that each member firm develop and implement a written AML program reasonably designed to achieve and monitor the member’s compliance with the requirements of the Bank Secrecy Act (31 U.S.C. 5311, et seq.) (BSA).  Rule 3310(a) further requires firms to, “[e]stablish and implement policies and procedures that can be reasonably expected to detect and cause the reporting of transactions required under [the BSA]  . . . . ”  The regulations implementing the BSA, in turn, require every broker-dealer to file a Suspicious Activity Report (“SAR”) with the Financial Crimes Enforcement Network any time they detect, “any suspicious transactions relevant to a possible violation of law or regulation.”

FINRA’s past guidance on this issue (NTM 02-21 and Regulatory Notice 19-18) advised firms to look for red flags and provided several examples:

  • Customers’ mailing address is associated with multiple other accounts or business that do not appear related,

00025601-300x166
On May 16, 2022, FINRA published an Acceptance, Waiver and Consent (“AWC”) in which FA, Robert Bennett Zamani, accepted a 14-month suspension and a $27,500 fine for violations of FINRA Rule 3270 (Outside Business Activities), Rule 2210 (Communications with the Public), Rule 4511 (Books and Records) and, as always, Rule 2010 (Standards of Commercial Honor).  The investigation of Zamani was triggered by a Form U5 filed by his former firm, Morgan Stanley.

The Rule 4511 violation was based on Zamani’s alleged use of business-related text messages that were not retained by Morgan Stanley, effectively causing Morgan Stanley to violate its obligation to maintain such communications under Rule 4511.  This is an easily avoidable rule violation that many FAs fall prey to.

More interesting, however, are Zamani’s alleged violations of 3270 and 2210.  Zamani formed a company in 2015 before becoming associated with Morgan Stanley.  Without ever disclosing the company to Morgan Stanley, between January 2017 and April 2020, Zamani, through this company, offered subscription-based investment content.  On its website, which was established and operated by Zamani, the company touted itself as a subscription-based platform providing investment content for aspiring day traders to “learn from professionally licensed stock traders the skills needed to become a profitable trader.” The company maintained a blog on its website, containing investment-related content, and maintained a publicly-available YouTube channel, with investment-related videos and distributed periodic newsletters to subscribers.   Remarkably, during that 3-year stretch, Zamani earned $360,000 from his subscriber-based investment advice company.

00025601-300x166
When settling a FINRA investigation, the Staff drafts a letter of Acceptance, Waiver and Consent (AWC) setting forth the terms of the settlement.  In the AWC, FINRA routinely demands the settling party consent to the following restraint on speech:

“Respondent may not take any action or permit to be made any public statement, including in regulatory filings or otherwise, denying directly or indirectly, any finding in this AWC or create the impression that the AWC is without factual basis.”

A matter before the U.S. Supreme Court may upend FINRA’s use of a gag order.

00025601-300x166
An AWC issued on July 1, 2021, reflects that FINRA suspended an FA formerly registered with David A. Noyes & Company (now known as Sanctuary Securities) for three-months and imposed a deferred fine of $5,000.  This AWC demonstrates FINRAs ongoing concerns around the sale of leveraged and inverse exchange traded funds to retail customers.  This week’s AWC is the book-end to an AWC issued in May 2021 against Sanctuary for a variety of violations, including the failure to establish, maintain and enforce a supervisory system designed to meet FINRAs suitability standards for non-traditional ETFs.  Sanctuary was fined $160,000 and ordered to pay customer restitution of $370,161.

By way of background, the broker-dealer permitted FA Stuart Pearl to resign in March 2019.  According to statements on BrokerCheck, Mr. Pearl resigned while on heightened supervision and the firm alleged that Mr. Pearl had not followed the heightened supervision plan.

Product at Issue:  Non-Traditional ETFs

00025601-300x166
On September 9, 2020, FINRA issued an AWC resolving an investigation with FA Patrick J. Knox.  At first blush, the investigation seemed to resolve a rather straightforward Reg S-P violation.  FINRA accused Knox of printing his customer list in anticipation of joining a new broker-dealer and providing the list to his prospective employer.  Apparently, the list included customer names, social security numbers and birth dates.  Because the customer’s did not authorize the release of this information, FINRA deemed Knox to have violated Reg S-P and slapped his wrist with a 10-day suspension and a fine of $2,500.  However, a closer examination of the AWC raises some interesting questions about the viability of certain protections afforded by the Protocol for Broker Recruiting.

The Protocol for Broker Recruiting

The Protocol is an agreement designed to provide a framework for representatives to leave one firm and join another.  If an FA abides by the Protocol, she can join a competitor without fear of being sued for having violated a contractual non-solicitation provision.  Firms that join the Protocol do so on a voluntary basis and agree that an FA can join a competing firm and bring along a client list containing the following information:  client name, address, phone number, email address, and account title of the clients.

00025601-300x166
On May 8, 2020, FINRA published an interesting AWC in which they suspended a quantitative research analyst for breaching internal policies relating to the treatment of confidential and proprietary information.  Although FINRA will aggressively pursue Reg S-P violations, in which nonpublic confidential information pertaining to a customer — such as a social security number or account number — is improperly disclosed, this AWC is somewhat unique because FINRA charged the individual with sending himself computer code seemingly unrelated to customers of the firm.

The matter at hand concerns Sune Gaulsh, FINRA Matter No. 2018058804301, an individual who was formerly employed by Barclays Capital.  According to his LinkedIn profile, Gaulsh was “part of a collaborating team within equities and research that researched and developed systematic trading strategies (volatility, global macro/CTA, L/S equity, event driven), constructed cross asset risk premia and factor portfolios, and evaluated data sets for alpha.”  Although Gaulsh voluntarily resigned from Barclays, the firm filed a Form U5 disclosing an internal investigation “to determine if the registered representative sent the firm’s proprietary business information to his personal email address.”

Underlying Conduct

00025601-300x166
This week’s FINRA settlements report AWC’s in which FINRA hit two FAs for some misguided efforts toward good customer service.

In the Matter of Sandra Gose Stevens, FINRA Matter No. 2018058123701

Stevens was formerly registered with MML Investors Services, LLC, which terminated her in April 2018 concerning an alleged “signature irregularity.”  FINRA thereafter initiated an investigation and made the following findings in the AWC:

00025601-300x166
Maybe it’s just me, but it feels like FINRA has ramped up its caseload for undisclosed outside business activities and unapproved private securities transactions.  This week alone, FINRA resolved two such cases in FINRA Matter No. 2018058026701, Alexander Jon James and FINRA Matter No. 2019061490801, Barry Robert Bode.  Before analyzing the cases, it’s worth re-visiting the scope of these rules:

FINRA Rule 3270 (Outside Business Activities)

The rule is designed to prevent FAs from engaging in outside business activities absent written approval from the member firm.  Generally speaking, the rule does not apply to the registered person’s personal passive investments (e.g., buying away) and activities conducted on behalf of a member firm’s affiliate (e.g., work for an affiliated investment advisory firm or insurance arm).  Examples of reportable outside business activities could include providing accounting or consulting services, working for a start-up or sitting on a board of directors, acting as a real estate broker, and serving on the board of a religious or civic organization, among other things.

00025601-300x166
On March 18, 2020, FINRA barred FA James Daughtry for his refusal to appear for an on-the-record interview, which is akin to a deposition.  Daughtry consented to the bar from the securities industry by executing the Letter of Acceptance, Waiver and Consent (AWC) in Department of Enforcement v. James Blake Daughtry, Matter No. 2020065293201.

Background

According to BrokerCheck, Daughtry entered the securities industry in 1999.  He registered with Kestra Investment Services, LLC in February 2015 and remained with Kestra until his termination in March 2020.  James Daughtry worked from a branch located in Dothan, Alabama.

Contact Information