Firm Settles Charges for Failing to Monitor Customer for Manipulative Trading

A firm settled separate charges with FINRA and Nasdaq (see here and here) for surveillance failures over potentially manipulative trading by a customer subject to heightened supervision.

In separate letters of Acceptance, Waiver, and Consent, FINRA and Nasdaq said that the firm, which provides online trading tools to retail investors, opened a self-directed trading account for the customer, but failed to subject the account to adequate oversight, despite "numerous surveillance alerts" having been generated. FINRA and Nasdaq said that the firm failed to reasonably review or follow up on the alerts that the customer may be potentially engaging in, or had engaged in, manipulative trading. Further, FINRA and Nasdaq said that the firm had delegated supervisory responsibility over the customer's account to a designated account representative, but that the firm’s written supervisory procedures did not reasonably describe the process of how to carry out these supervisory responsibilities.

As a result, FINRA found that the firm violated FINRA Rules 3110(a) and (b) ("Supervision") and 2010 ("Standards of Commercial Honor and Principles of Trade"). Nasdaq found that the firm violated Nasdaq Rules 3010 and 2010A.

To settle the charges, the firm agreed to (i) a censure by both Nasdaq and FINRA and (ii) pay a total fine of $100,000, with $50,000 paid to both FINRA and Nasdaq.