Firm Settles FINRA Charges for Net Capital Deficiencies

A firm, acting as the distributor for affiliated mutual funds, settled FINRA charges for settled FINRA charges for failing to maintain minimum required net capital and related violations.

According to the AWC, the firm misclassified non-allowable assets as allowable in computing the firm's net capital. FINRA said the misclassified assets were reimbursements that an affiliate paid to the firm on a semi-monthly basis under an expense-sharing agreement. According to FINRA, properly classifying these unsecured receivables as non-allowable assets put the firm significantly below its minimum net capital requirement, and on at least six occasions the firm's net capital deficiency exceeded $1 million. FINRA said the firm continued to operate a securities business even though its net capital was below the minimum required amount.

FINRA also found that the firm prepared and maintained inaccurate net capital computations, filed FOCUS reports that inaccurately stated the firm's net capital and failed to compute the firm's net capital during months when it was not required to submit FOCUS reports to FINRA. Further, FINRA found that the firm failed to make and preserve records of its net capital each month; instead, it computed its net capital only when preparing quarterly FOCUS reports.

As a result, FINRA found that the firm violated SEA Section 15(c) ("Government securities brokers and dealers") and Rule 15c3-1 ("Net capital requirements for brokers or dealers"), and FINRA Rules 4110 ("Capital Compliance") and 2010 ("Standards of Commercial Honor and Principles of Trade").

To settle the charges, the firm agreed to (i) a censure and (ii) pay a $30,000 fine.