Firm Fined for Net Capital and AML Violations

A municipal bond dealer settled FINRA charges for (i) conducting securities business while net capital deficient; (ii) filing inaccurate FOCUS reports; and (iii) failing to conduct mandatory anti-money laundering program testing.

According to the AWC, FINRA found that the firm conducted a securities business while under its minimum net capital requirement of $100,000. FINRA said that the deficiency resulted from the firm's failure to apply required net capital haircuts to municipal securities held in the firm's inventory. FINRA highlighted that the firm assumed all economic gains and losses from the trades, but found that it improperly treated the securities as belonging to a third-party entity.

FINRA determined that the misclassification caused the firm to report inflated net capital on its books and records. During a 23-month period, the firm recorded inaccurate net capital amounts in its general ledger and filed 23 inaccurate FOCUS reports overstating its financial position. FINRA also found that the firm failed to timely report a net capital deficiency during the relevant period. 

FINRA also determined that the firm failed to conduct an independent audit of its AML compliance program during the relevant period. 

As a result of these findings, FINRA concluded that the firm violated SEA Rule 15c3-1 ("Net capital requirements for brokers or dealers"); SEA Section 17(a) ("Records and Reports") and Rules 17a-3 ("Records to be made by certain exchange members, brokers and dealers"), 17a-5 ("Reports to be made by certain brokers and dealers") and 17a-11 ("Notification provisions for brokers and dealers"); and FINRA Rules 4110 ("Capital Compliance"), 4511 ("General Requirements"), 3110 ("Supervision") 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 $20,000 fine.