On December 20, 2019, FINRA announced a settlement with John Carneglia.  According to the AWC, Carneglia violated FINRA Rule 3210 for failing to notify his member firm of a brokerage account and violated FINRA Rule 3270 for failing to timely disclose an outside business activity.

Underlying Facts

Carenglia was registered with BNP Paribas from June 2006 through July 2017.  According to FINRA, Carneglia didn’t inform BNP of his wife’s brokerage account and likewise failed to inform the firm that maintained his wife’s account of his association with BNP.  Further, FINRA alleges that Carneglia was a member of an LLC that owned an income-generating rental property (ski-resort condominium), yet failed to timely notify BNP of that outside business activity.

Relevant Rules

FINRA Rule 3210

This rule is called “Accounts At Other Broker-Dealers and Financial Institutions.”  The basic requirements of this rule are:

  • You need written permission from your member firm to open or maintain an account at another institution in which securities transaction can be effected.
  • You need to inform the executing member of your association with an employing member.
  • This rule applies to any account “in which the associated person has a beneficial interest.” Beneficial ownership is presumed for accounts of the FA held by:
    • The spouse of the FA;
    • The children of the FA;
    • Any other related individual over whose accounts the FA has control; or
    • Any other individual over whose account the FA control and to whom the FA offers material financial support.

FINRA Rule 3270

This rule is called “Outside Business Activities of Registered Persons.”  The basic requirements of this rule are:

  • You need to give your employer prior written notice of any business activity outside the scope of the relationship with your firm.
  • This includes being an employee, independent contractor, sole proprietor, officer, director or partner of any business from which you receive compensation or expect to receive compensation.
  • EXEMPTED from this rule are passive investments and activities subject to the requirements of Rule 3280 (private securities transactions of an associated person).

Sanction Guidelines

According to FINRA’s Sanction Guidelines, failing to comply with Rule 3210 can result in a fine between $1,000 and $39,000 and “in egregious cases” a suspension up to 2 years or a bar.   For undisclosed outside business activities, the Sanction Guidelines provide for a fine between $2,500 and $77,000 and a suspension of 10 days to 3 months.

Upshot of Carneglia’s Alleged Violations

FINRA suspended Carneglia for 2 months and fined him $15,000.

Herskovits PLLC

Herskovits PLLC has a nationwide practice defending individuals and institutions that are subject to regulatory investigations (including FINRA investigations) and disciplinary proceeding.  Please feel free to call us for a consultation 212-897-5410.  Also feel free to view our practice area page.

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