Broker-Dealer Fined for Supervisory Failures on Trade Recommendations

A broker-dealer settled FINRA charges for failing to sufficiently supervise short-term trade recommendations made by one of its registered representatives.

In a Letter of Acceptance, Waiver and Consent, FINRA alleged that the registered representative recommended that customers purchase and promptly sell corporate bonds or preferred securities that were typically suitable for customers only if held long-term. FINRA claimed that between 2012 and 2017, the registered representative made short-term trade recommendations that resulted in losses of over $900,000 for 10 customers.

According to FINRA, the broker-dealer's automated alert system for signaling trade activity that warrants further review generated nearly 100 alerts in response to the registered representative's recommendations. Nonetheless, FINRA found that the broker-dealer allowed the registered representative to continue making short-term trade recommendations, thus failing to take reasonable steps to review (i) the red flags associated with the registered representative's recommendations, and (ii) whether such recommendations were suitable in violation of FINRA Rule 3110 ("Supervision").

To settle the charges, the broker-dealer agreed to (i) a censure, (ii) a $175,000 fine, and (iii) payment of $774,574.08 in restitution, plus interest, to eight of the impacted customers.