FINRA Regulation

FINRA Fine Stats 2016 vs. 2017 and Enforcement Trends

August 30, 2017 | Herskovits, PLLC

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Over the course of 2016, FINRA expelled 24 firms from membership and fined offenders for a total of $176 million. The largest fine amounted to $25 million, paid by MetLife Securities over negligent misrepresentations and omissions in connection with variable annuity replacements.

A total of $27,9 million from monetary sanctions corresponded to customer restitutions. In the MetLife case, this amounted to $5 million.

On average, FINRA fined 31 offenders per month. There were many serial offenders, with 46 firms fined more than once throughout the year and 11 firms fined more than four times.

FINRA Vows to Protect Investors from High-Risk Brokers

August 29, 2017 | Herskovits, PLLC

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In a speech delivered at Georgetown University, FINRA CEO Robert Cook expressed the Regulatory Authority’s intent on helping brokerages identify and supervise brokers with a history of disciplinary action.

From now on, FINRA is going to look very closely at how firms hire and supervise high-risk brokers, Cook explained.

Firms should have heightened supervision in place to prevent potential violations by brokers with a history of misconduct. According to Cook, it is firms themselves who have asked FINRA for more guidance on the issue.

Keeping the Record Straight – FINRA Cracks Down on Firms for Failing to Protect Records

August 3, 2017 | Herskovits, PLLC

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Regulatory compliance is often less costly than FINRA’s steep fines. Yet companies continue to face millions of dollars in penalties for not complying with FINRA’s regulations. In this particular time, there is a clear intent from FINRA to hold such companies accountable. Unfortunately, many of them have learned this the hard way.

FINRA has just fined State Street Global Markets and Acorns Securities $2 million for an easily avoidable violation: improper retention of customer records. FINRA has very specific requirements for record-keeping, which should be done in a manner that prevents them from being altered or destroyed.

For State Street, this is the second blow in a row, after Richard Boomgaardt, a former executive with the company pleaded guilty to securities fraud and wire fraud involving secret commissions on billions of dollars of trades. Edward Pennings, another former State Street exec also pleaded guilty in the same case.

FINRA Chief Counsel on Emerging Regulatory Issues and Enforcement Priorities

July 31, 2017 | Herskovits, PLLC

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At a recent event hosted by the American Bar Association’s Securities Litigation Committee, three Chief Counsel from the Financial Industry Regulatory Authority’s Enforcement division discussed the agency’s current priorities.

Chief Counsel Sue Light, Gina Petrocelli, and Lara Thyagarajan shed light on the areas that FINRA will be scrutinizing more closely through the second half of 2017.

As per FINRA’s 2017 Priorities Letter, the Regulatory Authority is shifting its focus from a “culture of compliance” to a “blocking and tackling” model, emphasizing on watching brokers with a track record of disciplinary actions.

FINRA Investigation Defenses, Process & Rule 8210 Realities

July 10, 2017 | Herskovits, PLLC

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With the increase in FINRA enforcement activity in the last year, we hear daily from concerned RAs and other financial industry professionals – this post is intended to decode the basics of the process and offer some cautions to avoid pitfalls awaiting the unwary.

1. How can you become a target of a FINRA investigation?

The Financial Industry Regulatory Authority (FINRA) is a self-regulating organization. Although it is not a government agency, its primary mission is to protect investors by regulating its members. All broker-dealers, down to the last firm employee, must abide by FINRA’s rules.

Albany Investment Firm Agrees to Pay Tribe $3.4 Million Over Fraudulent Sale of Non-Traded REITs and BDCs

May 22, 2017 | Herskovits, PLLC

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Purshe Kaplan Sterling Investments (PKS) of Albany, New York, recently agreed to pay $3.4 million to a Native American tribe to resolve allegations that one of its brokers, Gopi Krishna Vungarala, took millions of dollars in undisclosed commissions on the tribe’s investments.

Vungarala was not only a financial advisor to the tribe; he was also employed as its Treasury Investment Manager, which allowed him to participate in investment decisions. Vungarala allegedly used his position for his own personal gain, although he was purportedly aware that employees of the tribe were banned from engaging in any business activities that might imply a conflict of interest.

According to a statement by FINRA,“Vungarala was able to misrepresent to the tribe that neither PKS nor he would receive commissions on its purchases, and he was therefore able to induce the tribe to invest more than $190 million in non-traded REITs and BDCs. In fact, Vungarala personally received at least $9 million in commissions from the tribe’s investments.”

FINRA Settles Complaint Over Undisclosed Tax Liens Over $1 MIllion

May 20, 2017 | Herskovits, PLLC

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Kevin Richard Graetz, a former broker from New York, recently settled a FINRA complaint relating to his alleged failure to report $1 Million in tax liens over the course of seven years.

FINRA requires registered personnel to disclose tax liens and any other unsatisfied judgments in their Form U4.

As per FINRA’s settlement documents, in his Form U4 filings between February, 2013 and February, 2014, Graetz failed to mention the unsatisfied tax liens he was subject to.

FINRA’s Revised Sanction Guidelines

May 5, 2017 | Herskovits, PLLC

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Last April, FINRA announced that it had revised the sanction guidelines that apply when there has been a violation of a FINRA rule. Professionals in the industry whose activities are regulated by FINRA need to be aware of the scope and impact of these changes.

The Sanction Guidelines do not directly prescribe specific penalties or punishments for each particular violation. In essence, their role is to assist FINRA adjudicators to impose sanctions in a fairer and more consistent manner.

They are meant to establish a range of potential sanctions for each type of violation, and they also introduce the concept of aggravating and mitigating factors, which FINRA’s hearing panels and the NAC are expected to consider throughout disciplinary proceedings.

FINRA Fines TD Bank Unit over Failure to Review Emails

April 18, 2017 | Herskovits, PLLC

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A unit of TD Bank, a US subsidiary of Canada’s Toronto-Dominion Bank, has agreed to pay a $125,000 fine to resolve allegations that it failed to record the required review of 3.1 million emails.

FINRA requires that all securities-related correspondence between registered representatives and the public receive supervisory review, pursuant to Rule 3010:

“Each member shall develop written procedures that are appropriate to its business, size, structure, and customers for the review of incoming and outgoing written (i.e., non-electronic) and electronic correspondence with the public relating to its investment banking or securities business, including procedures to review incoming, written correspondence directed to registered representatives and related to the member’s investment banking or securities business to properly identify and handle customer complaints and to ensure that customer funds and securities are handled in accordance with firm procedures.”

FINRA Implements New Rule and Procedures to Prevent Financial Exploitation of Seniors

April 11, 2017 | Herskovits, PLLC

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New FINRA Rule 2165 (Financial Exploitation of Specified Adults) and Amendments to FINRA Rule 4512 (Customer Account Information)

America’s population is rapidly aging. The number of US residents over the age of 65 is expected to double over the next 30 years. Today, seniors, specifically baby boomers, control 50% of all existing investable assets across the country.

This portion of the US population has a combined net worth of over $30 trillion. According to a 2016 survey by Public Policy, about one in five Americans over the age of 65 have “been taken advantage of financially in terms of an inappropriate investment, unreasonably high fees for financial services, or outright fraud.”