FINRA delivers a one-two punch: Bars broker and firm for non-compliance

Think that because you’re a ‘small” shop, the regulators won’t find you? Wake up!  You are not a little needle hiding in a big haystack. The regulators have eyes everywhere!

A Financial Industry Regulatory Authority (FINRA) hearing panel permanently barred broker Bruce Martin Zipper of Miami, FL, for continuing to conduct his firm’s business while serving a three-month suspension. And, then, the regulators expelled his firm, Dakota Securities, from FINRA membership for failing to adequately supervise his activities.

Does a rogue broker signal a negligent firm?

Maybe, if the broker and the firm are one in the same. Zipper’s firm was expelled for permitting him to “associate” while suspended for falsifying books and records. At the time, Zipper was a principal at a Dakota Securities, a small broker-dealer that operated as a “one-man shop.” Zipper wore “all the hats.”

When Zipper entered into a settlement with FINRA’s Department of Enforcement in April 2017 for his crimes, he agreed to pay a $5,000 fine and serve a 3-month suspension for failing to disclose three outstanding judgments. One might say he was getting off the hook rather cheaply.

After agreeing to settle, Zipper notified FINRA that he was bringing another broker into his firm to conduct firm business during his suspension. But he didn’t. Suspended at the beginning of May 2016, he never stopped working with Dakota. Zipper continued soliciting Dakota customers, doing business with the firm’s clearing broker, and generally operating the firm. Business as usual.

In response, FINRA’s Department of Enforcement charged Zipper with violating his settlement agreement. And then the regulator charged Dakota with allowing Zipper to associate with the firm while:

• suspended and statutorily disqualified,
• failing to implement adequate supervisory procedures, and
• maintaining false books and records.

Can a rogue broker hurt your firm?

Apparently yes. And not just when the broker and the firm are one and the same. Poor policies are poor policies.

In barring the broker and the firm, the FINRA panel concluded, “We find that there is no question that Zipper violated his suspension by associating with Dakota” in breach of his settlement.” The panel also noted that during the suspension, Zipper regularly communicated with Dakota’s clearing firm and vendors regarding the firm’s ongoing operations, and with several firm customers in order to provide customers access to the firm’s website, their brokerage statements and other records, as well as Zipper’s investment analysis and recommendations that led to securities purchases. During the latter part of his suspension in August 2016, Zipper personally negotiated a settlement in an arbitration case against Dakota.

FINRA found “the firm knew that Zipper was continuing to associate with it while he was suspended. Zipper conducted Dakota business over firm e-mails; he entered trades in firm systems; he directed services from the firm’s vendors. Indeed, there is little evidence in the record that anyone else managed firm business during his periods of disqualification. Moreover, his firm, Dakota, took no action to stop the misconduct.”

Could anything have kept the firm compliant?

Maybe not in this instance. But what about other small or solo operations? How can they (and you) ensure there are processes, processes, procedures, and oversight in place to pre-empt bad practices? That’s where Patrina can help. We’ve built a business on helping organizations stay on the “straight and narrow” efficiently and cost-effectively. So, let’s talk. Call 212-233-1155 to ask about Patrina’s cost-effective and comprehensive, 8-module compliance solution, and compliant data capture, file storage, and records archiving specifically designed for the financial services community. Be smart. Be covered.