Bad things happen when your reps don’t keep you in the loop…

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…but you knew that.


Bad actors acting badly (IN YOUR FIRM) can cost you (and them!) money. But more importantly, when they get caught (and they often do), they can cost you money and put your firm in the regulatory agency spotlight.

No one likes that kind of attention.

Just this month, FINRA settled a matter involving a registered representative who participated in private securities transactions and engaged in outside business activities without providing prior written notice to his firm. Between August 2008 and August 2011, while he was registered with a firm, the representative recommended that four customers invest in two companies that specialized in the production and development of renewable energy. 

$250K worth of conflict of interest…ugh

The representative, who was a consultant for both energy companies, provided the customers with promotional materials about the companies. And at his urging, each invested in the energy companies to a collective tune of $255,000.

But it gets worse…On a second occasion, the representative convinced a customer to invest $26,000 in a gold mining company for which his son served as the CEO. Moreover, the rep did not provide his firm with any written notice of his participation in the customer’s purchase of interests in the energy or gold mining companies.

He violated NASD Rule 3040** (private securities transactions); NASD Rule 2110† (ethical standards) for conduct occurring before December 15, 2008; and FINRA Rule 2010 (ethical standards) for conduct occurring on or after December 15, 2008. Lose. Lose. Loser!

And it gets worse…More OBA

Without informing his firm of this outside business activity, the rep purchased gold and silver coins from the U.S. Department of the Treasury and sold them to four customers. These undisclosed outside business activities violated NASD Rule 3030§ (outside business activities) for conduct occurring before December 15, 2010; NASD Rule 2110† (ethical standards) for conduct occurring before December 15, 2008; FINRA Rule 3270 (outside business activities) for conduct occurring on and after December 15, 2010; and FINRA Rule 2010 (ethical standards) for conduct occurring on or after December 15, 2008.

Needless to say, FINRA punished this bad boy, suspending him for seven months and fining him. But the firm for which he worked is now on the regulatory agency’s radar. Ouch!

Doing nothing is not an option

Of course, it’s impossible to put a tracker on every member of your firm. The regulators know that. Stuff happens.

However, the regulators do expect you — whether you are the head of the company or head of compliance to create a compliance infrastructure that:

  • fully supports reporting requirements;
  • pre-empts tracking and addressing compliance breaches; and
  • anticipates regulatory requirements, new markets, investments and so on.

 No one is immune from regulation

Bad actors notwithstanding…if you are charged with compliance, you know you’re facing increased oversight which requires you to juggle more paper, more files, more data. Regulatory compliance requirements are getting more all-consuming and complying can often times feel like an undertaking without end. If your compliance function is under pressure to do more with less, what are the options?

Let’s talk (212-233-1155). Ask about Patrina’s comprehensive compliance solutions and compliance recordkeeping specifically designed for the financial services community.

Let’s talk.

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