Firm Settles Charges for Paying Commissions to Representatives' LLCs
Commentary by Steven Lofchie
A firm settled FINRA charges for violating FINRA Rule 2040 by paying approximately $19.3 million in transactions-based compensation to legal organizations, such as LLCs, established by its representatives, rather than paying the compensation directly to the representatives.
According to a Letter of Acceptance, Waiver and Consent, the firm's improper payments were made to 18 unregistered entities during the period from January 2017 to January 2021. FINRA determined that the firm violated FINRA Rules 2040 ("Payments to Unregistered Persons"), and 2010 ("Standards of Commercial Honor and Principles of Trade").
To settle the charges, the firm agreed to (i) a censure, (ii) a $75,000 fine, and (iii) provide a certification that all firm commissions and payments comply with FINRA Rule 2040.
Commentary
The firm's violation of Rule 2040 and broker-dealer registration requirements in this case was entirely straightforward and uncomplicated. There is simply no reason to throw in a "commercial honor" charge; Rule 2010 has been rendered absolutely meaningless by repetition.