We’re just midway through April, but the Financial Industry Regulatory Authority (FINRA) already has hit nearly one dozen firms for Written Supervisory Procedure (WSPs) failures for nearly $600,000 in fines and censures. Biggest hits (over $100K) went to Feltl & Company and Investment Professionals, Inc. But do read on as there are plenty more…
Feltl & Company down $150K
This Minneapolis, MN firm was censured and fined $150,000 for failing to establish, maintain and enforce WSPs that were reasonably designed to supervise the personal trading activity of firm members for conflicts of interest. FINRA found that one of Feltl’s registered representatives sold approximately 1.27 million shares in a penny stock he personally owned to 58 of his Feltl customers.
Bad news. But worse news is that FINRA found Feltl lacked supervisory system and written procedures reasonably designed to appropriately monitor trading by Feltl-associated reps in their personal firm accounts. The firm did generate exception reports that identified trades involving securities held by its employees and customers, but these were used primarily to identify instances of “front-running.” They were not designed to detect or monitor for conflicts of interest, nor did Feltl other systems or procedures to detect, monitor, or ensure that appropriate disclosures regarding conflicts of interest were made to its customers.
Even worse, Feltl also failed to issue timely reports of a number of “red flags” indicating that the representative was selling penny stock shares while recommending his firm customers purchase the stock.
Investment Professionals, Inc. out $125K
This San Antonio, TX firm executed 167 non-bonafide municipal transactions for one trading account without a change in beneficial ownership — and of these transactions, the firm executed seven, pre-arranged municipal transactions for the same account. At issue, according to FINRA is that while the firm had relevant WSPs related these kinds of transactions for managed accounts, it did not have any WSPs applicable to trading activity in limited partnership accounts.
That omission cost the firm $125,000, a censure, and a demand from FINRA to revise its WSPs. Lucky for the firm, the only reason FINRA didn’t require payment of restitution was because Investment Professionals had already paid it. Whew!
Dawson James Securities, Inc. is $75K poorer
Two highlights from FINRA’s “what were they thinking” litany of this Boca Raton, FL firm’s WSP failures involved Dawson James’ Director of Research, who:
These oversights and other WSPS failures relating to supervisory missteps relating to research and private offerings cost the firm $75,000.
FINRA’s April exposés of inadequate WSPs also cost:
And just think what FINRA will do in the last 15 days of April?
Pay attention! These small drip, drip, drip FINRA fines and censures do add up. But worse, you and your firm are now in FINRA’s sights. Do you think the regulators won’t keep watching? Why wait, like these folks, for that inevitable knock on the door. Protect your firm. Protect yourself. When the regulators come sniffing around, and they will, you’re only at risk when they find something amiss. So don’t give them grist for the mill. Give them what they want when they want it.
Why risk even the smallest fines when compliance is so much cheaper! Especially when companies like Patrina are offering comprehensive compliance solutions and compliant data capture, file storage, and records archiving specifically designed for the financial services community.
Let’s talk (212-233-1155). Don’t be a victim. Be safe, secure, and compliant instead.