The Cost of Supervisory Failures

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Supervisory failures cost Buckman, Buckman & Reid $204K

The Financial Industry Regulatory Authority (FINRA) has ordered New Jersey-based broker-dealer Buckman, Buckman & Reid, Inc. (BBR) to pay approximately $205,000 in restitution to seven customers. At issue is the firm’s failure to reasonably supervise two former registered representatives who recommended excessive and unsuitable trades in multiple customer accounts. In addition, FINRA also requires BBR to review and revise its supervisory system and written supervisory procedures. FINRA already barred both registered representatives from the industry.

Also sanctioned was Harry John (Chip) Buckman, Jr., a Senior Vice President and one of BBR’s owners. FINRA tagged him for failing to supervise the two registered representatives who reported directly to him. Moreover, FINRA suspended Buckman from associating with any FINRA member in any principal capacity for three months, assessed a $20,000 fine, and required him to complete 40 hours of continuing education concerning supervisory responsibilities.

Management must pay attention to the activities of those who report to them, says FINRA Executive Vice President, Department of Enforcement’s Susan Schroeder. “A firm and its supervisors must be vigilant in identifying and responding to unsuitable activity such as excessive trading and unsuitable concentration of customer accounts, which can result in significant customer harm.

“In this matter,” she adds, “FINRA has prioritized ensuring that affected customers receive full restitution, the firm fixes its supervisory flaws, and the responsible supervisor is held accountable and receives additional training.”

The Authority did not impose a fine in addition to the other sanctions in light of the firm’s financial condition, noting “the firm’s limited resources are better spent on remedial measures designed to prevent similar misconduct in the future.”

FINRA punishes overzealous trading and lack of oversight

Lack of awareness was no excuse according to FINRA which found that BBR and Buckman failed to identify that one of the barred registered representatives had engaged in frequent and short-term trading of Unit Investment Trusts (UITs) and other long-term investments with significant up-front costs.

The Authority noted that the trader, in one instance, had recommended that a retired couple with an investment objective of “balance/conservative growth” buy and then promptly sell UITs and other long-term investments on 15 separate occasions over 12 months. These trades appeared on monthly reports of potentially excessive trading, but no one at BBR actually reviewed the reports. Without intervention, the trader’s excessive trading of UITs and other long-term products, from 2013 to 2014, caused his customers to pay approximately $210,000 in commissions and resulted in losses of approximately $163,000.

BBR and Buckman also failed to identify that the second barred registered representative also had excessively traded three customers’ accounts. In this instance, as an example, the rep made more than 130 trades in the account of an 89-year-old retired customer over one year. Again, although this customer’s account regularly appeared on BBR’s monthly reports of potentially problematic activity, no one at BBR actually reviewed those reports or conducted reasonable suitability reviews.

FINRA found that BBR and Buckman also failed to reasonably supervise this rep’s recommendations that four additional customers purchase concentrated positions in a single, speculative security. In one instance, the rep recommended that a customer, whose net worth was less than $200,000, invest all of her account holdings in the speculative stock. BBR and Buckman were aware of this recommendation. Yet, no one at BBR took any measures to determine the concentration levels or whether they were suitable for the customers in question.

Was it a lack of compliance oversight?

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