September 28, 2022

Broker-Dealer Fined for Failing to Supervise Outside Business Activities

A broker-dealer settled FINRA charges for failing to adequately supervise the outside business activities of its registered representatives.

In a Letter of Acceptance, Waiver, and Consent, FINRA said that two registered representatives were engaged in outside business activities that involved investment funds and private placement offerings, "but the firm did not evaluate whether the activity constituted an outside securities activity." FINRA found that the firm failed to review the private placement offerings to determine if those transactions would interfere with or hinder the representatives' ability to fulfill their fiduciary obligation to the firm's clients. Further, the broker-dealer did not evaluate whether those transactions should be (i) restricted or outright prohibited given the potential conflicts of interest, or (ii) treated as an outside securities activity. FINRA stated that the transactions should have been documented in the firm's books and records if the broker-dealer had determined that the transactions constituted outside securities activities and did not restrict them.

As a result, FINRA determined that the broker-dealer violated FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade"), Rule 3110 ("Supervision") and Rule 3270.01 ("Outside Business Activities of Registered Persons"). To settle the charges, the broker-dealer agreed to (i) a censure and (ii) a civil monetary penalty of $30,000.