FINRA Expels Broker-Dealer for Misuse of Customer Accounts

FINRA expelled a broker-dealer firm from FINRA membership as a consequence of numerous FINRA violations, including, among others, converting and misusing customer funds, engaging in unauthorized trading, and charging customers unreasonable and discriminatory fees.

In a FINRA Disciplinary Proceeding, FINRA found that as a result of the firm’s extreme financial challenges, the firm engaged in misconduct in violation of FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade"), Rule 2121 ("Fair Prices and Commissions"), Rule 2122 ("Charges for Services Performed"), Rule 2150 ("Improper Use of Customers' Securities or Funds; Prohibition Against Guarantees and Sharing in Accounts"), and Rule 4110(c)(2) ("Prohibition on Withdrawing Capital").

The misconduct included:

• charging customers unreasonable fees in connection with their accounts and applying such fees in a discriminatory manner;
• charging unfair prices and commissions;
• converting and misusing customers’ funds and securities related to excessive and unreasonable fees;
• engaging in unauthorized trading by moving customers’ securities from accounts to firm accounts without customer authorization; and
• executing an unauthorized capital withdrawal.

The firm alleged that it advised customers of the change in its business plan and would be imposing additional fees prior to its misconduct. However, FINRA named numerous situations where customers were not aware of the firm’s changes and did not authorize the changes to their accounts. Further, customers had extreme difficulties contacting the company and getting answers to questions regarding their accounts.

To settle the charges, the firm was ordered to (i) permanently cease and desist from violating the above-mentioned FINRA rules and from converting or misusing customer funds or securities, (ii) receive expulsion from FINRA membership, and (iii) pay a $2,310,234 fine as restitution to affected customers.