FINRA Suspends Broker for Engaging in Outside Business Activity
Commentary by Steven Lofchie
FINRA suspended a broker for engaging in an undisclosed outside real estate business activity.
According to the AWC, the broker and a firm customer created a limited liability company through which they purchased, managed, and sold real estate. FINRA stated that the broker was actively involved in these activities and received compensation for his participation. FINRA stated that the broker was required to provide advance written notice but failed to do so. FINRA further found that the broker affirmatively misrepresented his involvement by repeatedly certifying on firm compliance questionnaires that he had no undisclosed outside business activities.
FINRA determined that the broker violated FINRA Rules 3270 ("Outside Business Activities of Registered Persons") and 2010 ("Standards of Commercial Honor and Principles of Trade").
The broker consented to a four-month suspension from associating with any FINRA member in all capacities and a $2,500 fine.
Commentary
There is little logic to FINRA's penalties as applied to retail brokers. In the instant case, the employee lied to his employer, now his former employer, and he was punished for it. The $2500 fine is not excessive, though a four-month suspension is not trivial if he hopes to work again. In the broker's favor, or at least arguing for some mercy, it is significant that no customers were harmed.
On the other hand, compare the fines in cases where there were very material injuries done to customers. (See FINRA Suspends Brokers for Excessive Trading (Aug. 25); FINRA Suspends Broker for Excessive Trading (Aug. 22).) Those cases seem to be instances where the broker's activities were not meaningfully different from outright theft, and yet the penalties were approximately the same as the employee who did not injure a customer.